-----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, Dcc22y7kQlpI+e00R72yGbpqgrXjAmtuhiI6XIRPTwYRGJDceUyupNxr06TVHdbU kyG3RDXoiR9vbPzRa4v14Q== 0001104659-09-062391.txt : 20091104 0001104659-09-062391.hdr.sgml : 20091104 20091104112657 ACCESSION NUMBER: 0001104659-09-062391 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20090831 FILED AS OF DATE: 20091104 DATE AS OF CHANGE: 20091104 EFFECTIVENESS DATE: 20091104 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: 091156722 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 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 C000013268 Class II C000013269 Class III GMOEX C000013270 Class IV GMEFX C000013271 Class V GEMVX C000013272 Class VI GEMMX 0000772129 S000004912 GMO Emerging Countries Fund 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 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 0000772129 S000023608 GMO Flexible Equities Fund C000069468 Class III C000069469 Class VI 0000772129 S000025186 GMO U.S. Treasury Fund C000075084 GMO U.S. Treasury Fund 0000772129 S000025199 GMO Asset Allocation Bond Fund C000075099 Class III GMOBX C000075103 Class VI GABFX N-CSRS 1 a09-26584_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)

 

J.B. Kittredge, 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:

02/28/10

 

 

Date of reporting period:

08/31/09

 

 


 

Item 1. Reports to Stockholders.

 

The semiannual reports for each series of the registrant for the periods ended August 31, 2009 are filed herewith.

 


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     98.6 %  
Short-Term Investments     1.7    
Rights and Warrants     0.0    
Other     (0.3 )  
      100.0 %  
Industry Group Summary   % of Equity Investments  
Energy     16.7 %  
Pharmaceuticals, Biotechnology & Life Sciences     14.3    
Health Care Equipment & Services     10.2    
Software & Services     8.6    
Insurance     7.4    
Technology Hardware & Equipment     7.4    
Retailing     6.7    
Food, Beverage & Tobacco     6.7    
Diversified Financials     4.2    
Food & Staples Retailing     3.5    
Capital Goods     2.5    
Household & Personal Products     2.0    
Banks     1.7    
Materials     1.3    
Telecommunication Services     1.3    
Media     1.2    
Consumer Durables & Apparel     1.0    
Utilities     0.7    
Commercial & Professional Services     0.7    
Consumer Services     0.7    
Transportation     0.5    
Semiconductors & Semiconductor Equipment     0.4    
Automobiles & Components     0.2    
Real Estate     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, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 98.6%  
        Automobiles & Components — 0.2%  
    100     Autoliv, Inc.     3,207    
    200     Harley-Davidson, Inc.     4,796    
    300     Johnson Controls, Inc.     7,431    
    Total Automobiles & Components     15,434    
        Banks — 1.7%  
    200     Associated Banc Corp.     2,074    
    1,100     BB&T Corp.     30,734    
    100     City National Corp.     3,950    
    300     Comerica, Inc.     8,001    
    600     Fifth Third Bancorp     6,564    
    400     First Horizon National Corp. *      5,352    
    500     KeyCorp.     3,330    
    300     People's United Financial, Inc.     4,818    
    1,600     Popular, Inc.     3,440    
    100     SunTrust Banks, Inc.     2,337    
    400     TCF Financial Corp.     5,504    
    200     US Bancorp     4,524    
    900     Wells Fargo & Co.     24,768    
    100     Zions Bancorporation     1,767    
    Total Banks     107,163    
        Capital Goods — 2.4%  
    300     3M Co.     21,630    
    100     Caterpillar, Inc.     4,531    
    100     Danaher Corp.     6,071    
    50     DigitalGlobe, Inc. *      1,003    
    100     Fastenal Co.     3,620    
    700     General Dynamics Corp.     41,433    
    1,500     General Electric Co.     20,850    
    100     L-3 Communications Holdings, Inc.     7,440    
    800     Masco Corp.     11,584    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Capital Goods — continued  
    700     Owens Corning, Inc. *      15,638    
    150     Parker-Hannifin Corp.     7,299    
    200     United Technologies Corp.     11,872    
    100     URS Corp. *      4,323    
    Total Capital Goods     157,294    
        Commercial & Professional Services — 0.7%  
    200     Cintas Corp.     5,488    
    200     Copart, Inc. *      7,068    
    200     Manpower, Inc.     10,340    
    400     R.R. Donnelley & Sons Co.     7,136    
    100     Waste Management, Inc.     2,993    
    300     Watson Wyatt Worldwide, Inc.     13,110    
    Total Commercial & Professional Services     46,135    
        Consumer Durables & Apparel — 1.0%  
    100     Black & Decker Corp.     4,412    
    400     Coach, Inc.     11,316    
    100     Hasbro, Inc.     2,839    
    200     Jones Apparel Group, Inc.     3,118    
    200     Leggett & Platt, Inc.     3,650    
    100     Mohawk Industries, Inc. *      5,012    
    7     NVR, Inc. *      4,727    
    100     Polo Ralph Lauren Corp.     6,638    
    500     Pulte Homes, Inc.     6,390    
    200     Snap-On, Inc.     7,464    
    200     Toll Brothers, Inc. *      4,548    
    100     Whirlpool Corp.     6,421    
    Total Consumer Durables & Apparel     66,535    
        Consumer Services — 0.7%  
    200     Apollo Group, Inc.-Class A *      12,964    
    300     Career Education Corp. *      7,125    
    100     ITT Educational Services, Inc. *      10,499    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Consumer Services — continued  
    100     McDonald's Corp.     5,624    
    200     Penn National Gaming, Inc. *      5,842    
    Total Consumer Services     42,054    
        Diversified Financials — 4.1%  
    300     American Express Co.     10,146    
    6,000     Bank of America Corp.     105,540    
    100     Capital One Financial Corp.     3,729    
    40     CME Group, Inc.     11,642    
    70     Franklin Resources, Inc.     6,533    
    520     Goldman Sachs Group (The), Inc.     86,039    
    300     JPMorgan Chase & Co.     13,038    
    800     Morgan Stanley     23,168    
    100     State Street Corp.     5,248    
    Total Diversified Financials     265,083    
        Energy — 16.5%  
    100     Baker Hughes, Inc.     3,445    
    800     BJ Services Co.     12,848    
    3,800     Chevron Corp.     265,772    
    100     Cimarex Energy Co.     3,904    
    4,429     ConocoPhillips     199,438    
    100     ENSCO International, Inc.     3,690    
    6,200     Exxon Mobil Corp.     428,730    
    100     Frontier Oil Corp.     1,283    
    200     Marathon Oil Corp.     6,174    
    700     Nabors Industries Ltd. *      12,376    
    100     Noble Energy, Inc.     6,046    
    400     Occidental Petroleum Corp.     29,240    
    500     Oil States International, Inc. *      14,735    
    500     Patterson-UTI Energy, Inc.     6,645    
    300     Penn Virginia Corp.     5,748    
    300     St. Mary Land & Exploration Co.     7,890    
    500     Sunoco, Inc.     13,450    
    400     Tesoro Corp.     5,632    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Energy — continued  
    200     Unit Corp. *      7,482    
    1,700     Valero Energy Corp.     31,858    
    Total Energy     1,066,386    
        Food & Staples Retailing — 3.5%  
    100     BJ's Wholesale Club, Inc. *      3,260    
    300     Kroger Co. (The)     6,477    
    375     Supervalu, Inc.     5,381    
    2,500     Wal-Mart Stores, Inc.     127,175    
    2,300     Walgreen Co.     77,924    
    200     Whole Foods Market, Inc. *      5,816    
    Total Food & Staples Retailing     226,033    
        Food, Beverage & Tobacco — 6.6%  
    3,600     Altria Group, Inc.     65,808    
    400     Archer-Daniels-Midland Co.     11,532    
    100     Bunge Ltd.     6,701    
    300     Campbell Soup Co.     9,408    
    2,100     Coca-Cola Co. (The)     102,417    
    600     Coca-Cola Enterprises, Inc.     12,126    
    400     Constellation Brands, Inc.-Class A *      5,916    
    100     Dean Foods Co. *      1,814    
    400     General Mills, Inc.     23,892    
    200     Hershey Co. (The)     7,846    
    100     JM Smucker Co. (The)     5,227    
    100     Kellogg Co.     4,709    
    107     Kraft Foods, Inc.-Class A     3,033    
    100     Lorillard, Inc.     7,277    
    200     Pepsi Bottling Group (The), Inc.     7,146    
    600     PepsiAmericas, Inc.     16,788    
    1,200     PepsiCo, Inc.     68,004    
    1,400     Philip Morris International, Inc.     63,994    
    224     Tyson Foods, Inc.-Class A     2,686    
    Total Food, Beverage & Tobacco     426,324    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Health Care Equipment & Services — 10.0%  
    1,600     AmerisourceBergen Corp.     34,096    
    900     Cardinal Health, Inc.     31,122    
    400     Cigna Corp.     11,772    
    400     Coventry Health Care, Inc. *      8,732    
    200     Express Scripts, Inc. *      14,444    
    100     Health Net, Inc. *      1,532    
    100     Humana, Inc. *      3,570    
    400     LifePoint Hospitals, Inc. *      10,052    
    400     Lincare Holdings, Inc. *      10,556    
    1,200     McKesson Corp.     68,232    
    200     Mednax, Inc. *      10,414    
    400     Medtronic, Inc.     15,320    
    100     Omnicare, Inc.     2,289    
    100     Quest Diagnostics, Inc.     5,396    
    200     ResMed, Inc. *      9,182    
    100     Stryker Corp.     4,146    
    8,167     UnitedHealth Group, Inc.     228,676    
    2,700     WellPoint, Inc. *      142,695    
    800     Zimmer Holdings, Inc. *      37,880    
    Total Health Care Equipment & Services     650,106    
        Household & Personal Products — 2.0%  
    200     Clorox Co.     11,818    
    500     Colgate-Palmolive Co.     36,350    
    200     Kimberly-Clark Corp.     12,092    
    400     NBTY, Inc. *      14,824    
    1,000     Procter & Gamble Co. (The)     54,110    
    Total Household & Personal Products     129,194    
        Insurance — 7.4%  
    100     Aflac, Inc.     4,062    
    1,600     Allstate Corp. (The)     47,024    
    200     American Financial Group, Inc.     5,130    
    100     Arch Capital Group Ltd. *      6,497    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Insurance — continued  
    200     Assurant, Inc.     5,990    
    400     Axis Capital Holdings Ltd.     12,192    
    1,000     Chubb Corp.     49,390    
    300     Endurance Specialty Holdings Ltd.     10,341    
    100     Everest Re Group Ltd.     8,431    
    300     Fidelity National Financial, Inc.-Class A     4,506    
    200     First American Corp.     6,304    
    600     Hartford Financial Services Group (The), Inc.     14,232    
    400     HCC Insurance Holdings, Inc.     10,576    
    300     Lincoln National Corp.     7,572    
    400     Marsh & McLennan Cos., Inc.     9,416    
    800     MetLife, Inc.     30,208    
    575     Old Republic International Corp.     6,848    
    100     PartnerRe Ltd.     7,391    
    100     Principal Financial Group, Inc.     2,840    
    500     Progressive Corp. (The) *      8,260    
    800     Protective Life Corp.     17,240    
    400     Prudential Financial, Inc.     20,232    
    200     Reinsurance Group of America, Inc.     8,610    
    100     RenaissanceRe Holdings Ltd.     5,445    
    200     StanCorp Financial Group, Inc.     7,570    
    200     Torchmark Corp.     8,522    
    2,500     Travelers Cos. (The), Inc.     126,050    
    300     Unum Group     6,759    
    700     W.R. Berkley Corp.     17,885    
    Total Insurance     475,523    
        Materials — 1.2%  
    500     Alcoa, Inc.     6,025    
    600     Cabot Corp.     11,874    
    1,400     Dow Chemical Co. (The)     29,806    
    100     Freeport-McMoRan Copper & Gold, Inc.     6,298    
    200     Nucor Corp.     8,908    
    200     Pactiv Corp. *      4,970    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Materials — continued  
    200     Reliance Steel & Aluminum Co.     7,388    
    100     Vulcan Materials Co.     5,004    
    Total Materials     80,273    
        Media — 1.2%  
    300     Cablevision Systems Corp.-Class A     6,702    
    800     CBS Corp.-Class B (Non Voting)     8,280    
    1,800     Comcast Corp.-Class A     27,576    
    200     Discovery Communications, Inc. *      5,184    
    700     Gannett Co., Inc.     6,048    
    200     Omnicom Group, Inc.     7,264    
    133     Time Warner Cable, Inc.     4,911    
    200     Time Warner, Inc.     5,582    
    200     Viacom, Inc. *      5,008    
    Total Media     76,555    
        Pharmaceuticals, Biotechnology & Life Sciences — 14.1%  
    600     Abbott Laboratories     27,138    
    2,400     Amgen, Inc. *      143,376    
    400     Biogen Idec, Inc. *      20,084    
    400     Bristol-Myers Squibb Co.     8,852    
    1,100     Eli Lilly & Co.     36,806    
    300     Endo Pharmaceuticals Holdings, Inc. *      6,771    
    1,300     Forest Laboratories, Inc. *      38,051    
    400     Gilead Sciences, Inc. *      18,024    
    2,900     Johnson & Johnson     175,276    
    1,100     King Pharmaceuticals, Inc. *      11,418    
    2,000     Merck & Co., Inc.     64,860    
    400     Mylan, Inc. *      5,868    
    16,900     Pfizer, Inc.     282,230    
    1,600     Wyeth     76,560    
    Total Pharmaceuticals, Biotechnology & Life Sciences     915,314    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Real Estate — 0.1%  
    200     Liberty Property Trust REIT     6,554    
        Retailing — 6.6%  
    200     Abercrombie & Fitch Co.-Class A     6,458    
    100     Advance Auto Parts, Inc.     4,230    
    400     American Eagle Outfitters, Inc.     5,400    
    600     AutoNation, Inc. *      11,388    
    60     AutoZone, Inc. *      8,835    
    500     Bed Bath & Beyond, Inc. *      18,240    
    200     Best Buy Co., Inc.     7,256    
    300     CarMax, Inc. *      5,193    
    100     Dollar Tree, Inc. *      4,994    
    200     Expedia, Inc. *      4,610    
    300     Family Dollar Stores, Inc.     9,084    
    300     Foot Locker, Inc.     3,198    
    300     Gap (The), Inc.     5,895    
    100     Genuine Parts Co.     3,704    
    5,200     Home Depot, Inc.     141,908    
    200     J.C. Penney Co., Inc.     6,008    
    900     Kohl's Corp. *      46,431    
    300     Limited Brands, Inc.     4,476    
    2,300     Lowe's Cos., Inc.     49,450    
    100     Nordstrom, Inc.     2,804    
    200     O'Reilly Automotive, Inc. *      7,656    
    800     Penske Auto Group, Inc.     14,152    
    200     PetSmart, Inc.     4,182    
    200     RadioShack Corp.     3,026    
    100     Sears Holdings Corp. *      6,345    
    700     Staples, Inc.     15,127    
    500     Target Corp.     23,500    
    200     Urban Outfitters, Inc. *      5,686    
    Total Retailing     429,236    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Semiconductors & Semiconductor Equipment — 0.4%  
    200     Broadcom Corp.-Class A *      5,690    
    200     Cree, Inc. *      7,368    
    100     Lam Research Corp. *      3,070    
    500     NVIDIA Corp. *      7,260    
    200     Texas Instruments, Inc.     4,918    
    Total Semiconductors & Semiconductor Equipment     28,306    
        Software & Services — 8.5%  
    200     Accenture Ltd.-Class A     6,600    
    100     Adobe Systems, Inc. *      3,142    
    200     Affiliated Computer Services, Inc.-Class A *      8,960    
    200     Citrix Systems, Inc. *      7,136    
    200     Cognizant Technology Solutions Corp.-Class A *      6,976    
    100     Computer Sciences Corp. *      4,885    
    1,800     Compuware Corp. *      12,978    
    1,300     eBay, Inc. *      28,782    
    100     Fidelity National Information Services, Inc.     2,456    
    100     Fiserv, Inc. *      4,825    
    100     Global Payments, Inc.     4,244    
    170     Google, Inc.-Class A *      78,484    
    300     IAC/InterActiveCorp *      5,556    
    100     McAfee, Inc. *      3,978    
    6,800     Microsoft Corp.     167,620    
    7,800     Oracle Corp.     170,586    
    200     Rovi Corp. *      6,088    
    300     SAIC, Inc. *      5,547    
    900     Symantec Corp. *      13,608    
    400     Yahoo!, Inc. *      5,844    
    Total Software & Services     548,295    
        Technology Hardware & Equipment — 7.3%  
    30     Apple, Inc. *      5,046    
    6,300     Cisco Systems, Inc. *      136,080    
    800     Corning, Inc.     12,064    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Technology Hardware & Equipment — continued  
    1,200     Dell, Inc. *      18,996    
    400     Diebold, Inc.     12,068    
    600     EMC Corp. *      9,540    
    100     F5 Networks, Inc. *      3,449    
    100     Hewlett-Packard Co.     4,489    
    700     Ingram Micro, Inc.-Class A *      11,732    
    320     International Business Machines Corp.     37,776    
    200     Juniper Networks, Inc. *      4,614    
    300     Lexmark International, Inc. *      5,652    
    2,500     Motorola, Inc.     17,950    
    200     Polycom, Inc. *      4,718    
    300     QLogic Corp. *      4,743    
    2,700     Qualcomm, Inc.     125,334    
    300     SanDisk Corp. *      5,310    
    700     Seagate Technology     9,703    
    700     Tech Data Corp. *      26,670    
    400     Western Digital Corp. *      13,712    
    Total Technology Hardware & Equipment     469,646    
        Telecommunication Services — 1.2%  
    958     AT&T, Inc.     24,956    
    500     CenturyTel, Inc.     16,115    
    1,252     Verizon Communications, Inc.     38,862    
    Total Telecommunication Services     79,933    
        Transportation — 0.5%  
    1,700     Avis Budget Group, Inc. *      16,541    
    200     Norfolk Southern Corp.     9,174    
    100     United Parcel Service, Inc.-Class B     5,346    
    Total Transportation     31,061    
        Utilities — 0.7%  
    200     Consolidated Edison, Inc.     8,038    
    300     Nicor, Inc.     10,866    

 

See accompanying notes to the financial statements.


11


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Utilities — continued  
    200     Northeast Utilities     4,758    
    500     PG&E Corp.     20,295    
    100     Progress Energy, Inc.     3,953    
    Total Utilities     47,910    
    TOTAL COMMON STOCKS (COST $6,649,764)     6,386,347    
        RIGHTS AND WARRANTS — 0.0%  
        Technology Hardware & Equipment — 0.0%  
      800     Seagate Technology, Inc. Rights * (a)      —    
    TOTAL RIGHTS AND WARRANTS (COST $0)     —    
        SHORT-TERM INVESTMENTS — 1.7%  
        Money Market Funds — 1.7%  
      110,142     State Street Institutional Treasury Money Market Fund-Institutional Class     110,142    
    TOTAL SHORT-TERM INVESTMENTS (COST $110,142)     110,142    
            TOTAL INVESTMENTS — 100.3%
(Cost $6,759,906)		     6,496,489    
            Other Assets and Liabilities (net) — (0.3%)     (22,499 )  
    TOTAL NET ASSETS — 100.0%   $ 6,473,990    

 

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 (Note 2).

See accompanying notes to the financial statements.


12



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $6,759,906) (Note 2)   $ 6,496,489    
Dividends receivable     18,103    
Receivable for expenses reimbursed by Manager (Note 3)     5,797    
Total assets     6,520,389    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     1,682    
Shareholder service fee     813    
Accrued expenses     43,904    
Total liabilities     46,399    
Net assets   $ 6,473,990    
Net assets consist of:  
Paid-in capital   $ 18,735,404    
Accumulated undistributed net investment income     17,525    
Accumulated net realized loss     (12,015,522 )  
Net unrealized depreciation     (263,417 )  
    $ 6,473,990    
Net assets attributable to:  
Class III shares   $ 6,473,990    
Shares outstanding:  
Class III     1,068,821    
Net asset value per share:  
Class III   $ 6.06    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $3)   $ 71,571    
Total investment income     71,571    
Expenses:  
Management fee (Note 3)     8,928    
Shareholder service fee – Class III (Note 3)     4,320    
Audit and tax fees     28,152    
Custodian, fund accounting agent and transfer agent fees     9,752    
Legal fees     92    
Trustees fees and related expenses (Note 3)     34    
Total expenses     51,278    
Fees and expenses reimbursed by Manager (Note 3)     (37,996 )  
Net expenses     13,282    
Net investment income (loss)     58,289    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (481,917 )  
Closed futures contracts     (988 )  
Net realized gain (loss)     (482,905 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     2,077,464    
Open futures contracts     5,162    
Net unrealized gain (loss)     2,082,626    
Net realized and unrealized gain (loss)     1,599,721    
Net increase (decrease) in net assets resulting from operations   $ 1,658,010    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 58,289     $ 398,306    
Net realized gain (loss)     (482,905 )     (10,752,627 )  
Change in net unrealized appreciation (depreciation)     2,082,626       1,196,334    
Net increase (decrease) in net assets from operations     1,658,010       (9,157,987 )  
Distributions to shareholders from:  
Net investment income  
Class III     (50,102 )     (435,336 )  
Net share transactions (Note 7):  
Class III     28,099       (14,926,712 )  
Total increase (decrease) in net assets     1,636,007       (24,520,035 )  
Net assets:  
Beginning of period     4,837,983       29,358,018    
End of period (including accumulated undistributed net
investment income of $17,525 and $9,338, respectively)		   $ 6,473,990     $ 4,837,983    

 

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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 4.55     $ 7.86     $ 9.68     $ 10.78     $ 11.71     $ 11.36    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.05       0.14       0.18       0.21       0.26       0.20    
Net realized and unrealized
gain (loss)		     1.51       (3.31 )     (1.23 )     0.80       0.58       0.86    
Total from investment
operations		     1.56       (3.17 )     (1.05 )     1.01       0.84       1.06    
Less distributions to shareholders:  
From net investment income     (0.05 )     (0.14 )     (0.18 )     (0.23 )     (0.28 )     (0.19 )  
From net realized gains     —       —       (0.59 )     (1.88 )     (1.49 )     (0.52 )  
Total distributions     (0.05 )     (0.14 )     (0.77 )     (2.11 )     (1.77 )     (0.71 )  
Net asset value, end of period   $ 6.06     $ 4.55     $ 7.86     $ 9.68     $ 10.78     $ 11.71    
Total Return(a)      34.40 %**      (40.83 )%     (11.88 )%     9.80 %     7.73 %     9.59 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 6,474     $ 4,838     $ 29,358     $ 35,726     $ 95,605     $ 112,411    
Net expenses to average daily
net assets		     0.46 %*      0.46 %(b)      0.46 %     0.46 %     0.48 %     0.48 %  
Net investment income to average
daily net assets		     2.02 %*      1.94 %     1.93 %     1.91 %     2.31 %     1.79 %  
Portfolio turnover rate     25 %**      57 %     75 %     72 %     62 %     60 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     1.32 %*      0.43 %     0.23 %     0.13 %     0.12 %     0.10 %  

 

(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, 2009 (Unaudited)

1.  Organization

GMO U.S. Intrinsic Value Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the Russell 1000 Value Index. The Fund typically makes equity investments in U.S. companies that issue stocks included in the Russell 1000 Index, a U.S. stock index, and in companies with similar market capitalizations. Under normal circumstances, the Fund invests at least 80% of its assets in investments tied economically to the U.S. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, futures, and swap contracts. The Fund also may invest in unaffiliat ed money market funds and in GMO U.S. Treasury 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 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives)


17


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund valued rights held as worthless.

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

Asset Valuation Inputs   Investments
in Securities		   Other Financial
Instruments		  
Level 1 - Quoted Prices   $ 6,386,347     $ —    
Level 2 - Other Significant Observable Inputs     110,142       —    
Level 3 - Significant Unobservable Inputs     0 *     —    
Total   $ 6,496,489     $ —    

 

*  Represents the interest in worthless securities that have no value at August 31, 2009.

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   $ —     $ —    

 


18


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

All of the Fund's common stocks are classified as Level 1. Please refer to the Schedule of Investments for a more detailed categorization of common stocks. All short-term investments are classified as Level 2.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. The Fund had no futures contracts outstanding at the end of the period.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.


19


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility


20


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and warrants held 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 carryforwards 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.

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


21


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $7,496,232.

As of February 28, 2009, 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:

2/28/2017   $ (3,433,141 )  
Total   $ (3,433,141 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 7,209,485     $ 439,149     $ (1,152,145 )   $ (712,996 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.


22


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Market Risk — Value Securities — The Fund purchases some equity securities at prices below what the Manager believes to be their fundamental value. The Fund bears the risk that the price of these securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.


23


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors and markets without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index).

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.


24


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


25


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (rights and
warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on futures
contracts* 		     —       —       —       —       —       —    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on futures
contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


26


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (rights and warrants)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       (988 )     —       (988 )  
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ (988 )   $ —     $ (988 )  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (rights and warrants)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       5,162       —       5,162    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 5,162     $ —     $ 5,162    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures  
Average notional amount outstanding   $ 10,921    
Highest notional amount outstanding     39,740    
Lowest notional amount outstanding     —    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee is paid monthly at the annual rate of 0.31% of average daily net assets. The Fund has adopted a Shareholder Service Plan underwhich the Fund pays GMO a shareholder service fee for client and shareholder service, reporting,


27


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

and other support. Pursuant to the Shareholder Service Plan, the shareholder service fee is calculated based onaverage daily net assets at the annual rate of 0.15% for Class III shares.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.31% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.31% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.31% of the Fund's average daily net assets.

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, 2009 was $34 and $0, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $1,457,267 and $1,398,822, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


28


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 97.70% of the outstanding shares of the Fund were held by one shareholder.

As of August 31, 2009, 0.31% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 0.20% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     527     $ 2,656       3,140     $ 16,864    
Shares issued to shareholders
in reinvestment of distributions		     9,592       49,677       64,488       427,139    
Shares repurchased     (4,730 )     (24,234 )     (2,738,867 )     (15,370,715 )  
Net increase (decrease)     5,389     $ 28,099       (2,671,239 )   $ (14,926,712 )  

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


29



GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In


30


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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, including the effect of recent market events and chan ges in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 facto rs, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


31


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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 15, 2009, 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, 2009.


32


GMO U.S. Intrinsic Value Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     $ 1,344.00     $ 2.72    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.89     $ 2.35    

 

*  Expenses are calculated using the Class's annualized expense ratio for the six months ended August 31, 2009, 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 Tobacco-Free Core Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.3 %  
Short-Term Investments     3.8    
Futures Contracts     0.1    
Other     (0.2 )  
      100.0 %  
Industry Group Summary   % of Equity Investments  
Pharmaceuticals, Biotechnology & Life Sciences     19.9 %  
Software & Services     13.1    
Energy     11.5    
Health Care Equipment & Services     8.8    
Technology Hardware & Equipment     8.5    
Food, Beverage & Tobacco     6.5    
Retailing     6.5    
Food & Staples Retailing     6.0    
Household & Personal Products     3.6    
Insurance     2.7    
Consumer Services     2.4    
Capital Goods     1.8    
Telecommunication Services     1.8    
Diversified Financials     1.6    
Materials     1.1    
Media     0.9    
Banks     0.8    
Utilities     0.7    
Consumer Durables & Apparel     0.7    
Semiconductors & Semiconductor Equipment     0.5    
Transportation     0.4    
Commercial & Professional Services     0.2    
Automobiles & Components     0.0    
      100.0 %  

 


1



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.3%  
        Automobiles & Components — 0.0%  
    100     Harley-Davidson, Inc.     2,398    
    100     Johnson Controls, Inc.     2,477    
    Total Automobiles & Components     4,875    
        Banks — 0.7%  
    1,700     BB&T Corp.     47,498    
    700     People's United Financial, Inc.     11,242    
    1,000     TFS Financial Corp.     11,400    
    100     US Bancorp     2,262    
    2,700     Wells Fargo & Co.     74,304    
    Total Banks     146,706    
        Capital Goods — 1.7%  
    1,300     3M Co.     93,730    
    1,150     DigitalGlobe, Inc. *      23,069    
    400     Fastenal Co.     14,480    
    1,400     General Dynamics Corp.     82,866    
    200     Goodrich Corp.     11,032    
    100     L-3 Communications Holdings, Inc.     7,440    
    300     Lockheed Martin Corp.     22,494    
    600     Masco Corp.     8,688    
    900     United Technologies Corp.     53,424    
    300     URS Corp. *      12,969    
    100     W.W. Grainger, Inc.     8,747    
    Total Capital Goods     338,939    
        Commercial & Professional Services — 0.2%  
    300     Copart, Inc. *      10,602    
    100     Dun & Bradstreet Corp.     7,304    
    200     Manpower, Inc.     10,340    
    400     Waste Management, Inc.     11,972    
    Total Commercial & Professional Services     40,218    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Consumer Durables & Apparel — 0.6%  
    2,700     Coach, Inc.     76,383    
    300     Hasbro, Inc.     8,517    
    800     Leggett & Platt, Inc.     14,600    
    8     NVR, Inc. *      5,402    
    100     Polo Ralph Lauren Corp.     6,638    
    1,000     Pulte Homes, Inc.     12,780    
    Total Consumer Durables & Apparel     124,320    
        Consumer Services — 2.3%  
    2,200     Apollo Group, Inc.-Class A *      142,604    
    300     Darden Restaurants, Inc.     9,879    
    1,000     H&R Block, Inc.     17,280    
    700     ITT Educational Services, Inc. *      73,493    
    2,800     McDonald's Corp.     157,472    
    2,300     Starbucks Corp. *      43,677    
    60     Strayer Education, Inc.     12,666    
    Total Consumer Services     457,071    
        Diversified Financials — 1.5%  
    80     CME Group, Inc.     23,283    
    1,080     Goldman Sachs Group (The), Inc.     178,697    
    100     IntercontinentalExchange, Inc. *      9,380    
    500     JPMorgan Chase & Co.     21,730    
    500     Moody's Corp.     13,620    
    1,100     Morgan Stanley     31,856    
    700     World Acceptance Corp. *      18,221    
    Total Diversified Financials     296,787    
        Energy — 11.1%  
    300     Baker Hughes, Inc.     10,335    
    1,100     BJ Services Co.     17,666    
    9,500     Chevron Corp.     664,430    
    200     Cimarex Energy Co.     7,808    
    6,251     ConocoPhillips     281,482    
    14,100     Exxon Mobil Corp.     975,015    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Energy — continued  
    900     Nabors Industries Ltd. *      15,912    
    200     Noble Energy, Inc.     12,092    
    1,400     Occidental Petroleum Corp.     102,340    
    200     Patterson-UTI Energy, Inc.     2,658    
    400     Southwestern Energy Co. *      14,744    
    800     Sunoco, Inc.     21,520    
    2,600     Valero Energy Corp.     48,724    
    Total Energy     2,174,726    
        Food & Staples Retailing — 5.8%  
    1,300     CVS Caremark Corp.     48,776    
    2,500     Kroger Co. (The)     53,975    
    365     Supervalu, Inc.     5,238    
    500     Sysco Corp.     12,745    
    15,300     Wal-Mart Stores, Inc.     778,311    
    7,000     Walgreen Co.     237,160    
    100     Whole Foods Market, Inc. *      2,908    
    Total Food & Staples Retailing     1,139,113    
        Food, Beverage & Tobacco — 6.3%  
    800     Archer-Daniels-Midland Co.     23,064    
    700     Campbell Soup Co.     21,952    
    10,600     Coca-Cola Co. (The)     516,962    
    1,300     Coca-Cola Enterprises, Inc.     26,273    
    200     Constellation Brands, Inc.-Class A *      2,958    
    600     Dean Foods Co. *      10,884    
    1,300     General Mills, Inc.     77,649    
    300     Hansen Natural Corp. *      9,798    
    1,400     Hershey Co. (The)     54,922    
    200     JM Smucker Co. (The)     10,454    
    700     Kellogg Co.     32,963    
    700     Kraft Foods, Inc.-Class A     19,845    
    700     Pepsi Bottling Group (The), Inc.     25,011    
    7,000     PepsiCo, Inc.     396,690    
    Total Food, Beverage & Tobacco     1,229,425    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Health Care Equipment & Services — 8.5%  
    2,800     AmerisourceBergen Corp.     59,668    
    900     Baxter International, Inc.     51,228    
    1,600     Cardinal Health, Inc.     55,328    
    400     Cerner Corp. *      24,684    
    900     Cigna Corp.     26,487    
    900     Coventry Health Care, Inc. *      19,647    
    400     DaVita, Inc. *      20,684    
    200     Edwards Lifesciences Corp. *      12,376    
    1,000     Express Scripts, Inc. *      72,220    
    400     Humana, Inc. *      14,280    
    100     Inverness Medical Innovations, Inc. *      3,560    
    2,100     McKesson Corp.     119,406    
    300     Medco Health Solutions, Inc. *      16,566    
    3,000     Medtronic, Inc.     114,900    
    800     Omnicare, Inc.     18,312    
    200     Patterson Cos., Inc. *      5,446    
    900     Quest Diagnostics, Inc.     48,564    
    300     ResMed, Inc. *      13,773    
    200     Stryker Corp.     8,292    
    20,767     UnitedHealth Group, Inc.     581,476    
    5,100     WellPoint, Inc. *      269,535    
    2,200     Zimmer Holdings, Inc. *      104,170    
    Total Health Care Equipment & Services     1,660,602    
        Household & Personal Products — 3.5%  
    800     Avon Products, Inc.     25,496    
    200     Church & Dwight Co., Inc.     11,426    
    1,000     Clorox Co.     59,090    
    2,500     Colgate-Palmolive Co.     181,750    
    300     Estee Lauder Cos. (The), Inc.-Class A     10,755    
    1,200     Kimberly-Clark Corp.     72,552    
    5,948     Procter & Gamble Co. (The)     321,846    
    Total Household & Personal Products     682,915    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Insurance — 2.6%  
    100     Aflac, Inc.     4,062    
    2,500     Allstate Corp. (The)     73,475    
    600     Brown & Brown, Inc.     11,922    
    1,600     Chubb Corp.     79,024    
    500     Fidelity National Financial, Inc.-Class A     7,510    
    400     HCC Insurance Holdings, Inc.     10,576    
    900     Marsh & McLennan Cos., Inc.     21,186    
    300     Odyssey Re Holdings Corp.     15,195    
    1,100     Old Republic International Corp.     13,101    
    1,200     Progressive Corp. (The) *      19,824    
    300     Torchmark Corp.     12,783    
    4,100     Travelers Cos. (The), Inc.     206,722    
    35     Unum Group     789    
    1,300     W.R. Berkley Corp.     33,215    
    Total Insurance     509,384    
        Materials — 1.1%  
    1,100     Alcoa, Inc.     13,255    
    1,500     Barrick Gold Corp.     52,050    
    2,100     Dow Chemical Co. (The)     44,709    
    200     Freeport-McMoRan Copper & Gold, Inc.     12,596    
    400     Nucor Corp.     17,816    
    500     Pactiv Corp. *      12,425    
    200     Reliance Steel & Aluminum Co.     7,388    
    300     Scotts Miracle-Gro Co. (The)-Class A     12,207    
    1,100     Southern Copper Corp.     31,086    
    200     Vulcan Materials Co.     10,008    
    Total Materials     213,540    
        Media — 0.9%  
    700     Cablevision Systems Corp.-Class A     15,638    
    2,400     CBS Corp.-Class B (Non Voting)     24,840    
    3,500     Comcast Corp.-Class A     53,620    
    400     DirecTV Group (The), Inc. *      9,904    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Media — continued  
    100     McGraw-Hill Cos. (The), Inc.     3,361    
    2,800     News Corp.-Class A     30,016    
    566     Time Warner Cable, Inc.     20,897    
    500     Viacom, Inc. *      12,520    
    Total Media     170,796    
        Pharmaceuticals, Biotechnology & Life Sciences — 19.2%  
    7,400     Abbott Laboratories     334,702    
    400     Allergan, Inc.     22,368    
    8,500     Amgen, Inc. *      507,790    
    1,000     Biogen Idec, Inc. *      50,210    
    9,800     Bristol-Myers Squibb Co.     216,874    
    200     Cephalon, Inc. *      11,386    
    5,200     Eli Lilly & Co.     173,992    
    3,600     Forest Laboratories, Inc. *      105,372    
    1,600     Gilead Sciences, Inc. *      72,096    
    11,120     Johnson & Johnson     672,093    
    11,100     Merck & Co., Inc.     359,973    
    100     Myriad Genetics, Inc. *      3,057    
    47,090     Pfizer, Inc.     786,403    
    2,600     Schering-Plough Corp.     73,268    
    600     Thermo Fisher Scientific, Inc. *      27,126    
    400     Vertex Pharmaceuticals, Inc. *      14,964    
    6,900     Wyeth     330,165    
    Total Pharmaceuticals, Biotechnology & Life Sciences     3,761,839    
        Retailing — 6.2%  
    600     Abercrombie & Fitch Co.-Class A     19,374    
    600     Advance Auto Parts, Inc.     25,380    
    1,100     Amazon.com, Inc. *      89,309    
    700     American Eagle Outfitters, Inc.     9,450    
    600     AutoNation, Inc. *      11,388    
    580     AutoZone, Inc. *      85,405    
    1,500     Bed Bath & Beyond, Inc. *      54,720    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Retailing — continued  
    1,600     Best Buy Co., Inc.     58,048    
    600     Dollar Tree, Inc. *      29,964    
    1,000     Family Dollar Stores, Inc.     30,280    
    1,000     Gap (The), Inc.     19,650    
    13,300     Home Depot, Inc.     362,957    
    400     J.C. Penney Co., Inc.     12,016    
    1,800     Kohl's Corp. *      92,862    
    200     Limited Brands, Inc.     2,984    
    5,300     Lowe's Cos., Inc.     113,950    
    300     Netflix, Inc. *      13,098    
    400     Nordstrom, Inc.     11,216    
    600     O'Reilly Automotive, Inc. *      22,968    
    600     PetSmart, Inc.     12,546    
    80     Priceline.com Inc. *      12,318    
    400     Ross Stores, Inc.     18,656    
    100     Sears Holdings Corp. *      6,345    
    800     Sherwin-Williams Co. (The)     48,160    
    900     Staples, Inc.     19,449    
    700     Target Corp.     32,900    
    300     Urban Outfitters, Inc. *      8,529    
    Total Retailing     1,223,922    
        Semiconductors & Semiconductor Equipment — 0.5%  
    600     Altera Corp.     11,526    
    900     Broadcom Corp.-Class A *      25,605    
    300     Cree, Inc. *      11,052    
    1,000     NVIDIA Corp. *      14,520    
    1,000     Texas Instruments, Inc.     24,590    
    200     Xilinx, Inc.     4,448    
    Total Semiconductors & Semiconductor Equipment     91,741    
        Software & Services — 12.6%  
    1,100     Affiliated Computer Services, Inc.-Class A *      49,280    
    300     Alliance Data Systems Corp. *      16,668    
    600     Automatic Data Processing, Inc.     23,010    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Software & Services — continued  
    300     BMC Software, Inc. *      10,695    
    600     Citrix Systems, Inc. *      21,408    
    900     Cognizant Technology Solutions Corp.-Class A *      31,392    
    300     Computer Sciences Corp. *      14,655    
    4,200     eBay, Inc. *      92,988    
    300     Global Payments, Inc.     12,732    
    1,120     Google, Inc.-Class A *      517,070    
    400     Intuit, Inc. *      11,108    
    60     MasterCard, Inc.-Class A     12,158    
    700     McAfee, Inc. *      27,846    
    33,000     Microsoft Corp.     813,450    
    12,800     Novell, Inc. *      55,680    
    32,700     Oracle Corp.     715,149    
    1,500     Symantec Corp. *      22,680    
    300     Visa, Inc.-Class A     21,330    
    Total Software & Services     2,469,299    
        Technology Hardware & Equipment — 8.2%  
    360     Apple, Inc. *      60,556    
    26,200     Cisco Systems, Inc. *      565,920    
    1,600     Corning, Inc.     24,128    
    5,000     Dell, Inc. *      79,150    
    1,800     EMC Corp. *      28,620    
    400     Hewlett-Packard Co.     17,956    
    1,480     International Business Machines Corp.     174,714    
    400     Juniper Networks, Inc. *      9,228    
    5,100     Motorola, Inc.     36,618    
    12,532     Qualcomm, Inc.     581,735    
    700     SanDisk Corp. *      12,390    
    500     Western Digital Corp. *      17,140    
    Total Technology Hardware & Equipment     1,608,155    
        Telecommunication Services — 1.7%  
    4,339     AT&T, Inc.     113,031    
    1,000     CenturyTel, Inc.     32,230    
    1,300     Frontier Communications Corp.     9,243    

 

See accompanying notes to the financial statements.


9


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Telecommunication Services — continued  
    600     MetroPCS Communications, Inc. *      4,776    
    5,684     Verizon Communications, Inc.     176,431    
    Total Telecommunication Services     335,711    
        Transportation — 0.4%  
    300     CH Robinson Worldwide, Inc.     16,878    
    400     Norfolk Southern Corp.     18,348    
    900     Southwest Airlines Co.     7,362    
    600     United Parcel Service, Inc.-Class B     32,076    
    Total Transportation     74,664    
        Utilities — 0.7%  
    600     Aqua America, Inc.     10,110    
    600     Consolidated Edison, Inc.     24,114    
    200     FPL Group, Inc.     11,236    
    300     NSTAR     9,492    
    1,300     PG&E Corp.     52,767    
    300     Progress Energy, Inc.     11,859    
    600     Southern Co.     18,720    
    Total Utilities     138,298    
    TOTAL COMMON STOCKS (COST $19,590,831)     18,893,046    
        SHORT-TERM INVESTMENTS — 3.8%  
        Money Market Funds — 3.8%  
    751,769     State Street Institutional Treasury Money Market Fund-Institutional Class     751,769    
    TOTAL SHORT-TERM INVESTMENTS (COST $751,769)     751,769    
            TOTAL INVESTMENTS — 100.1%
(Cost $20,342,600)		     19,644,815    
            Other Assets and Liabilities (net) — (0.1%)     (12,821 )  
    TOTAL NET ASSETS — 100.0%   $ 19,631,994    

 

See accompanying notes to the financial statements.


10


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  8     S&P 500 E-Mini Index   September 2009   $ 407,880     $ 28,944    

 

As of August 31, 2009, 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.


11



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $20,342,600) (Note 2)   $ 19,644,815    
Dividends and interest receivable     53,717    
Receivable for collateral on open futures contracts (Note 2)     36,000    
Receivable for expenses reimbursed by Manager (Note 3)     5,859    
Total assets     19,740,391    
Liabilities:  
Payable for investments purchased     45,442    
Payable to affiliate for (Note 3):  
Management fee     5,452    
Shareholder service fee     2,477    
Trustees and Chief Compliance Officer of GMO Trust fees     81    
Payable for variation margin on open futures contracts (Note 2)     3,080    
Accrued expenses     51,865    
Total liabilities     108,397    
Net assets   $ 19,631,994    
Net assets consist of:  
Paid-in capital   $ 31,830,369    
Accumulated undistributed net investment income     59,830    
Accumulated net realized loss     (11,589,364 )  
Net unrealized depreciation     (668,841 )  
    $ 19,631,994    
Net assets attributable to:  
Class III shares   $ 19,631,994    
Shares outstanding:  
Class III     2,329,393    
Net asset value per share:  
Class III   $ 8.43    

 

See accompanying notes to the financial statements.


12


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $57)   $ 231,835    
Total investment income     231,835    
Expenses:  
Management fee (Note 3)     31,085    
Shareholder service fee – Class III (Note 3)     14,130    
Audit and tax fees     28,152    
Custodian, fund accounting agent and transfer agent fees     9,844    
Registration fees     1,104    
Legal fees     368    
Trustees fees and related expenses (Note 3)     218    
Miscellaneous     184    
Total expenses     85,085    
Fees and expenses reimbursed by Manager (Note 3)     (39,560 )  
Expense reductions (Note 2)     (2 )  
Net expenses     45,523    
Net investment income (loss)     186,312    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (2,281,713 )  
Closed futures contracts     40,400    
Net realized gain (loss)     (2,241,313 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     6,884,556    
Open futures contracts     97,554    
Net unrealized gain (loss)     6,982,110    
Net realized and unrealized gain (loss)     4,740,797    
Net increase (decrease) in net assets resulting from operations   $ 4,927,109    

 

See accompanying notes to the financial statements.


13


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 186,312     $ 411,635    
Net realized gain (loss)     (2,241,313 )     (5,596,096 )  
Change in net unrealized appreciation (depreciation)     6,982,110       (3,998,033 )  
Net increase (decrease) in net assets from operations     4,927,109       (9,182,494 )  
Distributions to shareholders from:  
Net investment income  
Class III     (197,016 )     (407,510 )  
Net share transactions (Note 7):  
Class III     (1,946,953 )     (18,757,975 )  
Total increase (decrease) in net assets     2,783,140       (28,347,979 )  
Net assets:  
Beginning of period     16,848,854       45,196,833    
End of period (including accumulated undistributed net
investment income of $59,830 and $70,534, respectively)		   $ 19,631,994     $ 16,848,854    

 

See accompanying notes to the financial statements.


14



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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 6.54     $ 10.03     $ 12.88     $ 12.45     $ 12.24     $ 11.76    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.08       0.15       0.19       0.18       0.20       0.17    
Net realized and unrealized
gain (loss)		     1.89       (3.50 )     (0.96 )(a)      0.54       0.44       0.54    
Total from investment
operations		     1.97       (3.35 )     (0.77 )     0.72       0.64       0.71    
Less distributions to shareholders:  
From net investment income     (0.08 )     (0.14 )     (0.22 )     (0.23 )     (0.15 )     (0.18 )  
From net realized gains     —       —       (1.86 )     (0.06 )     (0.28 )     (0.05 )  
Total distributions     (0.08 )     (0.14 )     (2.08 )     (0.29 )     (0.43 )     (0.23 )  
Net asset value, end of period   $ 8.43     $ 6.54     $ 10.03     $ 12.88     $ 12.45     $ 12.24    
Total Return(b)      30.30 %**      (33.76 )%     (7.30 )%     5.87 %     5.40 %     6.16 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 19,632     $ 16,849     $ 45,197     $ 188,133     $ 224,097     $ 221,661    
Net expenses to average daily
net assets		     0.48 %(c)*      0.48 %(c)      0.48 %(c)      0.48 %     0.48 %     0.48 %  
Net investment income to average
daily net assets		     1.98 %*      1.67 %     1.52 %     1.46 %     1.68 %     1.43 %  
Portfolio turnover rate     29 %**      65 %     74 %     73 %     63 %     68 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.42 %*      0.39 %     0.08 %     0.06 %     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.


15



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Tobacco-Free Core Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the S&P 500 Index. The Fund typically makes equity investments in companies that issue stocks included in the S&P 500 Index, a U.S. stock index, and in companies with similar market capitalizations, other than tobacco-producing companies. Under normal circumstances, the Fund must invest at least 80% of its assets, and expects to invest substantially all of its assets, in investments in tobacco-free companies. The term "tobacco-free companies" refers to companies that are not listed in the Tobacco Producing Issuer industry classification maintained by Ford Investor Services. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment o bjective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, futures, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury 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 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives)


16


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

Asset Valuation Inputs   Investments
in Securities		   Other Financial
Instruments*		  
Level 1 - Quoted Prices   $ 18,893,046     $ 28,944    
Level 2 - Other Significant Observable Inputs     751,769       —    
Level 3 - Significant Unobservable Inputs     —       —    
Total   $ 19,644,815     $ 28,944    

 

*  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   $ —     $ —    

 


17


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

All of the Fund's common stocks and futures are classified as Level 1. Please refer to the Schedule of Investments for a more detailed categorization of common stocks. All short-term investments are classified as Level 2.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. 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 various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.


18


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility


19


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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.

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


20


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $2,211,392.

As of February 28, 2009, 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:

2/28/2017   $ (6,261,595 )  
Total   $ (6,261,595 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 21,361,341     $ 945,796     $ (2,662,322 )   $ (1,716,526 )  

 

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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.


21


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Market Risk — Value Securities — The Fund purchases some equity securities at prices below what the Manager believes to be their fundamental value. The Fund bears the risk that the price of these securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected).


22


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors and markets without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index).

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.


23


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


24


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on futures
contracts* 		     —       —       —       28,944       —       28,944    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 28,944     $ —     $ 28,944    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on futures
contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


25


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options,
rights & warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       40,400       —       40,400    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 40,400     $ —     $ 40,400    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options,
rights & warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       97,554       —       97,554    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 97,554     $ —     $ 97,554    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures  
Average notional amount outstanding   $ 395,858    
Highest notional amount outstanding     437,140    
Lowest notional amount outstanding     344,540    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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


26


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.33% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.33% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.33% of the Fund's average daily net assets.

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, 2009 was $218 and $92, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $5,256,945 and $7,049,702, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


27


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 85.05% 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.

As of August 31, 2009, 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 each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     448     $ 3,188       431     $ 3,713    
Shares issued to shareholders
in reinvestment of distributions		     24,352       179,453       41,507       366,324    
Shares repurchased     (271,286 )     (2,129,594 )     (1,971,521 )     (19,128,012 )  
Net increase (decrease)     (246,486 )   $ (1,946,953 )     (1,929,583 )   $ (18,757,975 )  

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


28



GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In


29


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. 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 benefi t to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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.


30


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


31


GMO Tobacco-Free Core Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.48 %   $ 1,000.00     $ 1,303.00     $ 2.79    
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, 2009, 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 Flexible Equities Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


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

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     99.8 %  
Short-Term Investments     0.6    
Other     (0.4 )  
      100.0 %  
Country Summary   % of Equity Investments  
Japan     100.0 %  
      100.0 %  
Industry Group Summary   % of Equity Investments  
Capital Goods     15.7 %  
Banks     12.3    
Retailing     11.8    
Diversified Financials     10.8    
Utilities     7.7    
Telecommunication Services     7.2    
Real Estate     6.0    
Food & Staples Retailing     5.1    
Transportation     4.3    
Consumer Durables & Apparel     3.8    
Food, Beverage & Tobacco     3.2    
Materials     3.0    
Commercial & Professional Services     2.5    
Health Care Equipment & Services     2.4    
Consumer Services     2.0    
Software & Services     1.3    
Media     0.5    
Household & Personal Products     0.4    
      100.0 %  

 


1



GMO Flexible Equities Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 99.8%  
        Japan — 99.8%  
    187     Access Co Ltd *      501,137    
    180,900     Aeon Co Ltd     1,914,751    
    140,200     Aeon Credit Service Co Ltd     1,584,340    
    55,500     Aica Kogyo Co Ltd     573,614    
    386,650     Aiful Corp     1,154,287    
    28,900     Alfresa Holdings Corp     1,307,600    
    33,800     Alpen Co Ltd     570,764    
    49,300     Aoyama Trading Co Ltd     915,045    
    901,000     Aozora Bank Ltd *      1,336,816    
    21,000     Arcs Co Ltd     320,283    
    12,000     Ariake Japan Co Ltd     187,399    
    722,000     Asahi Glass Co Ltd     6,279,817    
    30,100     Asatsu-DK Inc     650,515    
    32,300     Autobacs Seven Co Ltd     1,209,777    
    20,000     Bank of Ikeda Ltd (The) *      769,702    
    6,200     Bank of Okinawa Ltd (The)     245,342    
    39,000     Bank of Saga Ltd (The)     134,509    
    22,200     Bank of the Ryukyus Ltd     308,056    
    580,000     Bank of Yokohama Ltd (The)     3,272,885    
    142,600     Belluna Co Ltd     628,036    
    164,500     Best Denki Co Ltd     843,125    
    2,690     BIC Camera Inc     1,077,309    
    11,000     BML Inc     295,970    
    31,000     Bunka Shutter Co Ltd     118,625    
    19,500     Canon Marketing Japan Inc     327,917    
    35,800     Cawachi Ltd     769,039    
    378,900     Cedyna Financial Corp *      708,133    
    478,000     Central Glass Co Ltd     2,351,282    
    174,500     Century Tokyo Leasing Corp     2,005,840    
    289,000     Chiba Bank Ltd     1,818,620    
    28,600     Chiba Kogyo Bank Ltd *      246,166    
    30,300     Chiyoda Integre Co Ltd     357,316    

 

See accompanying notes to the financial statements.


2


GMO Flexible Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    145,400     Chubu Electric Power Co Inc     3,380,610    
    25,200     Chugoku Electric Power Co Inc     553,654    
    771,000     Chuo Mitsui Trust Holdings Inc     3,242,305    
    54,600     Circle K Sunkus Co Ltd     887,124    
    17,700     Coca-Cola Central Japan Co Ltd     243,452    
    6,500     Cocokara Fine Holdings Inc     133,372    
    136,200     COMSYS Holdings Corp     1,570,138    
    194,785     Credit Saison Co Ltd     2,605,406    
    94,900     CSK Holdings Corp *      457,366    
    138,000     Culture Convenience Club Co Ltd     1,019,595    
    299     DA Office Investment Corp (REIT)     945,566    
    253,000     Dai Nippon Printing Co Ltd     3,689,242    
    25,800     Daidoh Ltd     191,467    
    327,050     Daiei Inc *      1,450,695    
    54,700     Daiichikosho Co Ltd     723,139    
    34,000     Daiken Corp     69,419    
    1,288,000     Daikyo Inc *      3,347,914    
    56,000     Daimei Telecom Engineering Corp     547,761    
    161,000     Daio Paper Corp     1,537,603    
    86,900     Daito Trust Construction Co Ltd     4,141,274    
    47,000     Daiwa House Industry Co Ltd     523,066    
    1,089,000     Daiwa Securities Group Inc     6,706,820    
    90,000     Daiwabo Co Ltd     412,492    
    92,600     DCM Japan Holdings Co Ltd     623,336    
    97,100     Don Quijote Co Ltd     2,324,370    
    23,900     Doshisha Co Ltd     441,070    
    17,600     DTS Corp     161,153    
    1,431     eAccess Ltd     1,051,626    
    329,300     Edion Corp     2,808,552    
    30,400     Electric Power Development Co Ltd     922,011    
    73,800     Fast Retailing Co Ltd     8,836,156    
    20,300     FP Corp     964,333    
    1,147,000     Fuji Electric Holdings Co Ltd     2,189,219    
    101,800     Fuji Oil Co Ltd     1,428,446    

 

See accompanying notes to the financial statements.


3


GMO Flexible Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    18,000     Fuji Soft Inc     340,197    
    11,000     Fujicco Co Ltd     128,310    
    18,000     Futaba Corp     309,577    
    73,700     Fuyo General Lease Co Ltd     1,643,131    
    1,145     Geo Corp     1,181,526    
    104     Global One REIT Co Ltd     774,789    
    72,590     Goldcrest Co Ltd     2,122,022    
    126,000     GS Yuasa Corp     1,097,261    
    29,280     Gulliver International Co Ltd     2,048,910    
    69,300     H.I.S. Co Ltd     1,471,291    
    256,000     Hachijuni Bank Ltd (The)     1,467,568    
    13,120     Hakuhodo DY Holdings Inc     728,683    
    473,000     Hankyu Hanshin Holdings Inc     2,264,787    
    4,129,000     Haseko Corp *      4,653,843    
    15,200     Heiwado Co Ltd     222,866    
    62,000     Higashi-Nippon Bank Ltd (The)     143,898    
    70,500     Hikari Tsushin Inc     1,522,417    
    193,000     Hiroshima Bank Ltd (The)     823,734    
    206,000     Hitachi Cable Ltd     688,018    
    105,800     Hitachi Capital Corp     1,518,646    
    27,300     Hitachi Systems & Services Ltd     629,060    
    21,800     Hogy Medical Co Ltd     1,223,305    
    82,700     Hokkaido Electric Power Co Inc     1,704,337    
    71,000     Hokuetsu Bank Ltd (The)     144,038    
    110,000     Hokuetsu Paper Mills Ltd     596,250    
    39,300     Hokuriku Electric Power Co     951,929    
    15,500     Hokuto Corp     364,580    
    82,070     Honeys Co Ltd     628,094    
    31,400     IBJ Leasing Co Ltd     450,893    
    90,300     Ito En Ltd     1,655,942    
    20,100     Itoki Corp     53,987    
    37,200     Izumi Co Ltd     541,609    
    101,000     Izumiya Co Ltd     618,775    
    72,000     J Front Retailing Co Ltd     407,435    

 

See accompanying notes to the financial statements.


4


GMO Flexible Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    170,000     J-Oil Mills Inc     629,889    
    348,000     JACCS Co Ltd     882,123    
    628     Japan Retail Fund Investment Corp (REIT)     3,344,730    
    74,000     Joshin Denki Co Ltd     595,598    
    136,600     JS Group Corp     2,416,488    
    129,900     K's Holdings Corp     3,984,075    
    1,360,000     Kajima Corp     3,813,030    
    327     Kakaku.com Inc     1,222,071    
    88,000     Kamigumi Co Ltd     744,997    
    72,000     Kandenko Co Ltd     498,552    
    20,700     Kansai Electric Power Co Inc     475,684    
    126,000     Kansai Urban Banking Corp     204,912    
    63,500     Kanto Tsukuba Bank Ltd (The) *      216,778    
    32,800     Kao Corp     830,737    
    32,000     Kasumi Co Ltd     153,660    
    32,600     Kato Sangyo Co Ltd     549,933    
    156     KDDI Corp     886,831    
    103,000     Keihan Electric Railway Co Ltd     456,431    
    260,000     Keihin Electric Express Railway Co Ltd     2,154,041    
    41,000     Keisei Electric Railway Co Ltd     286,643    
    39,400     Keiyo Co Ltd     197,635    
    4,365     Kenedix Inc *      2,105,994    
    277     Kenedix Realty Investment Corp (REIT)     1,036,596    
    717,000     Kintetsu Corp     3,104,924    
    116,000     Kirin Holdings Co Ltd     1,695,892    
    11,442     KK daVinci Holdings *      1,753,218    
    68,200     Kohnan Shoji Co Ltd     772,739    
    151,000     Kojima Co Ltd     782,651    
    193,000     Krosaki Harima Corp     381,455    
    348,000     Kurabo Industries Ltd     765,921    
    80,000     Kyodo Printing Co Ltd     278,485    
    17,400     Kyoritsu Maintenance Co Ltd     287,602    
    93,000     Kyowa Exeo Corp     936,268    
    65,000     Kyudenko Corp     428,077    

 

See accompanying notes to the financial statements.


5


GMO Flexible Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    231,300     Kyushu Electric Power Co Inc     5,107,640    
    285,200     Leopalace21 Corp     2,579,725    
    267,000     Maeda Corp     882,867    
    78,000     Maeda Road Construction Co Ltd     686,964    
    19,200     Mandom Corp     557,653    
    67,000     Marudai Food Co Ltd     189,871    
    723,000     Maruha Group Inc     1,094,923    
    147,000     Marui Group Co Ltd     1,016,876    
    22,000     Maruzen Showa Unyu Co Ltd     72,820    
    36,600     Matsuda Sangyo Co Ltd     557,557    
    151,800     Matsui Securities Co Ltd     1,405,543    
    67,000     McDonald's Holdings Co (Japan) Ltd     1,253,511    
    200,500     Mediceo Paltac Holdings Co Ltd     2,865,129    
    20,000     Megane TOP Co Ltd     324,630    
    53,000     Mercian Corp     133,251    
    346     MID REIT Inc     766,031    
    18,200     Mikuni Coca-Cola Bottling Co Ltd     153,479    
    64,000     Miraca Holdings Inc     1,845,404    
    852,000     Mitsubishi Electric Corp     6,330,819    
    417,000     Mitsubishi Paper Mills Ltd     587,006    
    2,587,600     Mitsubishi UFJ Financial Group Inc     16,450,064    
    124,880     Mitsubishi UFJ Lease & Finance Co Ltd     3,957,526    
    25,000     Mitsui Home Co Ltd     161,783    
    1,990,300     Mizuho Financial Group Inc     4,842,212    
    449,000     Mizuho Investors Securities Co Ltd *      530,453    
    77,000     Morinaga & Co Ltd     165,494    
    371,000     Morinaga Milk Industry Co Ltd     1,618,957    
    255,000     Nagoya Railroad Co Ltd     873,997    
    309,000     Nankai Electric Railway Co Ltd     1,365,651    
    83,000     Nanto Bank Ltd (The)     489,563    
    14,800     NEC Fielding Ltd     231,134    
    14,300     NEC Networks & System Integration Corp     196,066    
    584     Net One Systems Co Ltd     960,376    
    424,000     Nichias Corp     1,630,794    

 

See accompanying notes to the financial statements.


6


GMO Flexible Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    19,200     Nichiha Corp     156,247    
    63,800     Nichii Gakkan Co     737,873    
    139,000     Nihon Yamamura Glass Co Ltd     440,686    
    203     Nippon Commercial Investment Corp (REIT)     364,419    
    146,000     Nippon Corp     1,262,756    
    86,000     Nippon Densetsu Kogyo Co Ltd     851,658    
    758,000     Nippon Express Co Ltd     3,384,019    
    123,000     Nippon Flour Mills Co Ltd     631,269    
    69,000     Nippon Konpo Unyu Soko Co Ltd     846,234    
    125,400     Nippon Paper Group Inc     3,685,512    
    490     Nippon Residential Investment Corp (REIT)     1,219,148    
    62,600     Nippon Signal Co Ltd (The)     626,111    
    394,900     Nippon Suisan Kaisha Ltd     1,183,715    
    404,500     Nippon Telegraph & Telephone Corp     18,007,520    
    1,272,000     Nishimatsu Construction Co Ltd     2,269,173    
    90,200     Nishimatsuya Chain Co Ltd     902,367    
    60,300     Nissen Holdings Co Ltd     200,925    
    176,000     Nisshin Oillio Group Ltd (The)     935,721    
    113,000     Nisshinbo Holdings Inc     1,318,407    
    127,000     Nissin Corp     350,030    
    55,250     Nitori Co Ltd     4,268,138    
    421,000     Nitto Boseki Co Ltd     831,617    
    19,900     Nitto Kogyo Corp     190,095    
    595,000     Nomura Holdings Inc     5,272,449    
    6,214     NTT Docomo Inc     9,567,177    
    816,000     Obayashi Corp     3,671,939    
    244,000     Odakyu Electric Railway Co Ltd     2,190,104    
    329,000     OJI Paper Co Ltd     1,550,164    
    36,000     Okamura Corp     204,644    
    124     Okinawa Cellular Telephone Co     245,562    
    21,200     Okinawa Electric Power Co     1,262,777    
    11,000     Okuwa Co Ltd     135,189    
    50,000     Olympus Corp     1,355,543    
    105,000     Onward Holdings Co Ltd     763,695    
    977,000     Orient Corp *      1,069,521    

 

See accompanying notes to the financial statements.


7


GMO Flexible Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    29,500     Oriental Land Co Ltd     1,994,401    
    223,370     ORIX Corp     17,115,797    
    245,000     Osaka Gas Co Ltd     846,724    
    18,000     Paris Miki Holdings Inc     175,957    
    85,300     Park24 Co Ltd     860,705    
    349     Pasona Group Inc     251,064    
    1,159,500     Penta Ocean Construction Co Ltd *      1,582,252    
    15,300     Pigeon Corp     633,094    
    126     PILOT Corp     147,466    
    35,500     PLENUS Co Ltd     524,627    
    42,260     Point Inc     2,583,338    
    131     Premier Investment Corp (REIT)     550,320    
    76,900     QP Corp     825,871    
    1,577     Rakuten Inc     952,602    
    669,600     Resona Holdings Inc     9,120,906    
    20,000     Resorttrust Inc     247,547    
    61,700     Ricoh Leasing Co Ltd     1,339,869    
    34,700     Right On Co Ltd     327,516    
    195,100     Round One Corp     1,767,551    
    33,900     Ryohin Keikaku Co Ltd     1,547,067    
    25,800     Ryoshoku Ltd     604,101    
    144,000     Sagami Railway Co Ltd     620,644    
    22,600     Saint Marc Holdings Co Ltd     726,280    
    30,900     Saizeriya Co Ltd     511,982    
    16,300     Sakata Seed Corp     248,740    
    6,800     San-A Co Ltd     263,590    
    21,600     Sanei-International Co Ltd     315,640    
    57,000     Sanki Engineering     475,856    
    595,000     Sankyo-Tateyama Holdings Inc *      645,867    
    361,000     Sankyu Inc     1,625,816    
    234,000     Sanwa Shutter Corp     860,260    
    140,000     Sanyo Shokai Ltd     470,828    
    101,000     Sapporo Hokuyo Holdings Inc *      366,446    
    2,534     SBI Holdings Inc     566,943    
    27,100     Secom Co Ltd     1,222,269    

 

See accompanying notes to the financial statements.


8


GMO Flexible Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    211,000     Seiko Holdings Corp     571,327    
    216,000     Seino Holdings Co Ltd     1,921,515    
    64,400     Seiren Co Ltd     417,899    
    121,000     Sekisui Chemical Co Ltd     771,718    
    355,000     Sekisui House Ltd     3,402,624    
    48,000     Senko Co Ltd     189,100    
    19,900     Senshukai Co Ltd     139,612    
    607,200     Seven & I Holdings Co Ltd     14,654,567    
    371     Seven Bank Ltd     941,387    
    47,200     Shikoku Electric Power Co Inc     1,459,981    
    23,100     Shimamura Co Ltd     2,067,432    
    323,000     Shimizu Corp     1,330,761    
    199,000     Shinko Securities Co Ltd     747,639    
    62,000     Shizuoka Gas Co Ltd     462,566    
    25,400     SHO-BOND Holdings Co Ltd     491,561    
    49,000     Shochiku Co Ltd     424,447    
    83,100     Shoei Co Ltd     668,720    
    35,000     Showa Sangyo Co Ltd     112,144    
    105,000     Snow Brand Milk Products Co Ltd     379,211    
    309,700     SoftBank Corp     6,934,783    
    1,081,700     Sumitomo Electric Industries Ltd     13,956,217    
    218,700     Sumitomo Forestry Co Ltd     1,812,546    
    409,000     Sumitomo Osaka Cement Co Ltd     869,193    
    1,969,311     Sumitomo Trust & Banking Co Ltd     12,012,858    
    11,300     Sundrug Co Ltd     289,826    
    42,000     Suzuken Co Ltd     1,384,905    
    776,000     SWCC Showa Holdings Co Ltd *      899,931    
    756     T-Gaia Corp     1,331,742    
    296,000     Taihei Kogyo Co Ltd     906,542    
    1,664,000     Taiheiyo Cement Co Ltd     2,876,336    
    20,500     Taikisha Ltd     277,453    
    2,184,000     Taisei Corp     4,787,664    
    89,000     Takaoka Electric MFG Co Ltd     313,739    
    108,000     Takara Standard Co Ltd     635,172    
    41,000     Takasago Thermal Engineering Co Ltd     365,641    

 

See accompanying notes to the financial statements.


9


GMO Flexible Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    158,600     Takefuji Corp     810,284    
    535,000     TOA Corp     655,538    
    51,300     Toho Holdings Co Ltd     759,337    
    96,500     Tohoku Electric Power Co Inc     2,088,595    
    226,000     Tokai Tokyo Financial Holdings     814,795    
    24,140     Token Corp     873,823    
    534,300     Tokyo Electric Power Co Inc (The)     13,917,853    
    1,147,000     Tokyo Gas Co Ltd     4,593,201    
    146,000     Tokyo Tatemono Co Ltd     862,433    
    30,500     Tokyo Tomin Bank Ltd (The)     554,242    
    57,760     Tokyu Construction Co Ltd *      177,513    
    276,000     Tokyu Land Corp     1,290,853    
    76     Top REIT Inc     316,044    
    53,200     Toppan Forms Co Ltd     744,178    
    394,000     Toppan Printing Co Ltd     3,884,289    
    85,000     Toshiba Plant Systems & Services Corp     1,153,421    
    1,062,000     Toyo Construction Co Ltd     637,113    
    91,000     Toyo Securities Co Ltd *      216,661    
    47,300     Toyo Seikan Kaisha Ltd     985,469    
    36,000     Toyo Suisan Kaisha Ltd     916,199    
    466,000     Toyobo Co Ltd     891,170    
    92,000     Uchida Yoko Co Ltd     308,717    
    49,300     United Arrows Ltd     419,995    
    135     United Urban Investment Corp (REIT)     751,191    
    955,000     Unitika Ltd *      923,694    
    369,700     UNY Co Ltd     3,124,396    
    45,220     USS Co Ltd     2,847,223    
    52,000     Valor Co Ltd     476,449    
    42,100     WATAMI Co Ltd     881,850    
    16,000     Wood One Co Ltd     56,362    
    46,400     Xebio Co Ltd     1,007,778    
    19,500     Yachiyo Bank Ltd (The)     582,190    
    2,092     Yahoo Japan Corp     710,823    
    33,250     Yamada Denki Co Ltd     2,260,642    
    81,000     Yamaguchi Financial Group Inc     929,987    

 

See accompanying notes to the financial statements.


10


GMO Flexible Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value		   Description   Value ($)  
        Japan — continued  
    46,000     Yamato Holdings Co Ltd     759,803    
    51,000     Yamazaki Baking Co Ltd     690,838    
    7,000     Yaoko Co Ltd     227,028    
    52,000     Yokogawa Bridge Holdings Corp     425,283    
    29,000     Yokohama Reito Co Ltd     189,302    
    24,500     Yonekyu Corp     242,176    
    17,000     Yurtec Corp     110,760    
    44,400     Yusen Air & Sea Service Co Ltd     618,884    
    56,900     Zensho Co Ltd     414,622    
    Total Japan     492,580,009    
    TOTAL COMMON STOCKS (COST $443,407,899)     492,580,009    
        SHORT-TERM INVESTMENTS — 0.6%  
USD     600,000     BNP Paribas Time Deposit, 0.18%, due 09/01/09     600,000    
USD     16,455     Brown Brothers Harriman Time Deposit, 0.03%, due 09/01/09     16,455    
USD     600,000     Commerzbank Time Deposit, 0.15%, due 09/01/09     600,000    
JPY     9,654,221     HSBC Bank (Hong Kong) Time Deposit, 0.01%, due 09/01/09     103,753    
USD     600,000     HSBC Bank (USA) Time Deposit, 0.13%, due 09/01/09     600,000    
USD     500,000     Royal Bank of Canada Time Deposit, 0.15%, due 09/01/09     500,000    
USD     600,000     Societe Generale Time Deposit, 0.13%, due 09/01/09     600,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $3,020,208)     3,020,208    
            TOTAL INVESTMENTS — 100.4%
(Cost $446,428,107)		     495,600,217    
            Other Assets and Liabilities (net) — (0.4%)     (2,064,496 )  
    TOTAL NET ASSETS — 100.0%   $ 493,535,721    

 

See accompanying notes to the financial statements.


11


GMO Flexible Equities Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Notes to Schedule of Investments:

REIT - Real Estate Investment Trust

*  Non-income producing security.

Currency Abbreviations:

JPY - Japanese Yen

USD - United States Dollar

See accompanying notes to the financial statements.


12



GMO Flexible Equities Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $446,428,107) (Note 2)   $ 495,600,217    
Receivable for investments sold     2,627,690    
Dividends and interest receivable     732,120    
Receivable for expenses reimbursed by Manager (Note 3)     25,854    
Total assets     498,985,881    
Liabilities:  
Payable for Fund shares repurchased     5,000,000    
Payable to affiliate for (Note 3):  
Management fee     224,821    
Shareholder service fee     27,093    
Trustees and Chief Compliance Officer of GMO Trust fees     852    
Payable for foreign currency purchased     562    
Accrued expenses     196,832    
Total liabilities     5,450,160    
Net assets   $ 493,535,721    
Net assets consist of:  
Paid-in capital   $ 464,057,854    
Accumulated undistributed net investment income     2,446,221    
Accumulated net realized loss     (22,145,062 )  
Net unrealized appreciation     49,176,708    
    $ 493,535,721    
Net assets attributable to:  
Class III shares   $ 54,204,093    
Class VI shares   $ 439,331,628    
Shares outstanding:  
Class III     2,655,130    
Class VI     21,504,112    
Net asset value per share:  
Class III   $ 20.41    
Class VI   $ 20.43    

 

See accompanying notes to the financial statements.


13


GMO Flexible Equities Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $353,410)   $ 4,727,822    
Interest     2,050    
Total investment income     4,729,872    
Expenses:  
Management fee (Note 3)     1,200,191    
Shareholder service fee – Class III (Note 3)     40,129    
Shareholder service fee – Class VI (Note 3)     105,305    
Custodian and fund accounting agent fees     176,874    
Audit and tax fees     35,604    
Transfer agent fees     20,332    
Legal fees     8,188    
Trustees fees and related expenses (Note 3)     3,849    
Miscellaneous     5,336    
Total expenses     1,595,808    
Fees and expenses reimbursed by Manager (Note 3)     (244,402 )  
Expense reductions (Note 2)     (36 )  
Net expenses     1,351,370    
Net investment income (loss)     3,378,502    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (23,688,767 )  
Closed futures contracts     1,358,572    
Foreign currency, forward contracts and foreign currency related transactions     199,383    
Net realized gain (loss)     (22,130,812 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     140,594,237    
Foreign currency, forward contracts and foreign currency related transactions     28,809    
Net unrealized gain (loss)     140,623,046    
Net realized and unrealized gain (loss)     118,492,234    
Net increase (decrease) in net assets resulting from operations   $ 121,870,736    

 

See accompanying notes to the financial statements.


14


GMO Flexible Equities Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Period from
December 12, 2008
(commencement of operations)
through February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 3,378,502     $ 465,195    
Net realized gain (loss)     (22,130,812 )     (1,376,630 )  
Change in net unrealized appreciation (depreciation)     140,623,046       (91,446,338 )  
Net increase (decrease) in net assets from operations     121,870,736       (92,357,773 )  
Distributions to shareholders from:  
Net investment income  
Class III     —       (2,863 )  
Class VI     —       (32,233 )  
Total distributions from net investment income     —       (35,096 )  
Net share transactions (Note 7):  
Class III     (4,292,369 )     55,644,468    
Class VI     22,103,696       390,602,059    
Increase (decrease) in net assets resulting from net share
transactions		     17,811,327       446,246,527    
Total increase (decrease) in net assets     139,682,063       353,853,658    
Net assets:  
Beginning of period     353,853,658       —    
End of period (including accumulated undistributed net
investment income of $2,446,221 and distributions
in excess of net investment income of $932,281,
respectively)		   $ 493,535,721     $ 353,853,658    

 

See accompanying notes to the financial statements.


15



GMO Flexible Equities Fund

(A Series of GMO Trust)

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

   

Six Months Ended
August 31, 2009
(Unaudited)		   Period from
December 12, 2008
(commencement of
operations) through
February 28, 2009		  
Net asset value, beginning of period   $ 15.39     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)†      0.13       0.02    
Net realized and unrealized gain (loss)     4.89       (4.63 )  
Total from investment operations     5.02       (4.61 )  
Less distributions to shareholders:  
From net investment income     —       (0.00 )(a)   
Total distributions     —       (0.00 )  
Net asset value, end of period   $ 20.41     $ 15.39    
Total Return(b)      32.62 %**      (23.04 )%**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 54,204     $ 43,788    
Net expenses to average daily net assets     0.70 %(c)*      0.70 %*   
Net investment income to average daily net assets     1.42 %*      0.56 %*   
Portfolio turnover rate     31 %**      7 %**   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.11 %*      0.26 %*   

 

(a)  Distributions from net investment income were 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.

(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.


16


GMO Flexible Equities Fund

(A Series of GMO Trust)

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

    Six Months Ended
August 31, 2009
(Unaudited)		   Period from
December 12, 2008
(commencement of
operations) through
February 28, 2009		  
Net asset value, beginning of period   $ 15.39     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)†      0.14       0.03    
Net realized and unrealized gain (loss)     4.90       (4.64 )  
Total from investment operations     5.04       (4.61 )  
Less distributions to shareholders:  
From net investment income     —       (0.00 )(a)   
Total distributions     —       (0.00 )  
Net asset value, end of period   $ 20.43     $ 15.39    
Total Return(b)      32.75 %**      (23.04 )%**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 439,332     $ 310,066    
Net expenses to average daily net assets     0.61 %(c)*      0.61 %*   
Net investment income to average daily net assets     1.57 %*      0.69 %*   
Portfolio turnover rate     31 %**      7 %**   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.11 %*      0.26 %*   

 

(a)  Distributions from net investment income were 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.

(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.


17



GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Flexible Equities Fund (the "Fund"), which commenced operations on December 12, 2008, is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 World Index. The Manager plans to pursue the Fund's investment objective principally by investing in equity securities traded in any of the world's securities markets based on the Manager's assessment of relative opportunities in those markets. Under normal circumstances, the Fund invests at least 80% of its assets in equity investments (which include common stocks and other stock-related securities, such as preferred stocks, convertible securities, and depository receipts). The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. If the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund is permitted to (but is not obligated to) use a wide variety of exchange-traded and over-the-cou nter ("OTC") derivatives, including options, futures, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

For the period ended August 31, 2009, the Fund had two classes of shares outstanding: Class III and Class VI. Each class of shares bears a different shareholder service fee.

As of August 31, 2009, shares of the Fund are not publicly offered and are principally available only to other series of the Trust and certain accredited investors. On July 17, 2009, the Fund filed an initial registration statement to seek to register its shares under the Securities Act of 1933.

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.


18


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 99.81% of the net assets of the Fund were valued using fair value prices base d on models used by a third party vendor and are classified as using Level 2 inputs in the table below.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

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


19


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Common Stocks  
Japan   $ —     $ 492,580,009     $ —     $ 492,580,009    
TOTAL COMMON STOCKS     —       492,580,009       —       492,580,009    
Short-Term Investments     3,020,208       —       —       3,020,208    
Total Investments   $ 3,020,208     $ 492,580,009     $ —     $ 495,600,217    

 

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, 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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are equal to the difference between the value of the contract at


20


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the time it was opened and the value at the time it was closed. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign futures in those markets or on 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 futures using fair value prices, which are based on adjustments to closing price s supplied by a third party vendor based on that vendor's proprietary models. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set


21


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to th e risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset


22


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.


23


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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 certain countries in which it invests.


24


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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.

Distributions in excess of tax basis earnings and profits, if significant, are reported in the financial statements as a return of capital for tax purposes.

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October currency losses of $932,281.

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 447,877,948     $ 62,436,153     $ (14,713,884 )   $ 47,722,269    

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are


25


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value, and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Management Risk — This is the risk that the Manager's strategies and techniques will fail to produce the desired results.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Focused Investment Risk — Focusing investments in countries, regions, sectors, or a limited number of companies with high positive correlations to one another creates additional risk. This risk may be


26


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

particularly pronounced for the Fund because it may invest a significant portion of its assets in a particular geographic region or foreign country or in the securities of a limited number of issuers. A decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund invested in the securities of a larger number of issuers.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices.

• Smaller Company Risk — The securities of small companies typically are less widely held, trade less frequently and in lesser quantities, and have market prices that may fluctuate more than those of securities of larger capitalization companies.

Other principal risks of an investment in the Fund include Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), Market Disruption and Geopolitical Risk (the risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Leveraging Risk (increased risks from use of reverse repurchase agreements and other derivatives and securities lending), Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expecte d). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.


27


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index). The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are


28


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterparties may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


29


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on futures
contracts*		     —       —       —       —       —       —    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on futures
contracts*		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


30


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       1,358,572       —       1,358,572    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 1,358,572     $ —     $ 1,358,572    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures  
Average notional amount outstanding   $ 2,136,875    
Highest notional amount outstanding     10,856,130    
Lowest notional amount outstanding     —    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee is paid monthly at the annual rate of 0.55% of average daily net assets. The Fund has adopted a Shareholder Service Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Service Plan, the shareholder service fee is calculated based on


31


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

average daily net assets of each class at the annual rate of 0.15% for Class III shares and 0.055% for Class VI shares.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.55% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 to the extent that the sum of (i) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses) and (ii) the amount of fees and expenses incurred indirectly by the Fund through its investment in U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.55% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.55% of the Fund's average daily net assets.

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, 2009, was $3,389 and $1,932, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $158,752,196 and $129,406,929 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


32


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 64.84% 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 shareholders owned more than 10% of the outstanding shares of the Fund. Two of the shareholders are other funds of the Trust.

As of August 31, 2009, 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 each Fund 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, 2009
(Unaudited)		   Period from
December 12, 2008,
(commencement of operations)
through February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     215,917     $ 3,765,882       2,853,090     $ 55,792,551    
Shares issued to shareholders
in reinvestment of distributions		     —       —       92       1,917    
Shares repurchased     (406,189 )     (8,058,251 )     (7,780 )     (150,000 )  
Net increase (decrease)     (190,272 )   $ (4,292,369 )     2,845,402     $ 55,644,468    
    Six Months Ended
August 31, 2009
(Unaudited)		   Period from
December 12, 2008,
(commencement of operations)
through February 28, 2009		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     1,924,416     $ 31,765,623       20,213,445     $ 392,035,724    
Shares issued to shareholders
in reinvestment of distributions		     —       —       1,571       32,233    
Shares repurchased     (562,693 )     (9,661,927 )     (72,627 )     (1,465,898 )  
Net increase (decrease)     1,361,723     $ 22,103,696       20,142,389     $ 390,602,059    

 


33


GMO Flexible Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


34



GMO Flexible Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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 2008, information prepared by the third-party data services, various statistical measures of the Fund's performance relative to its benchmark, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered that the Fund is intended to complement other strategies offered by the Manager and is not intended to stand on its own, and concluded that the usefulness of the Fund's performance relative to its benchmark was limited because the Fund is not managed to a benchmark. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those person nel 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


35


GMO Flexible Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

concerning fees paid to managers of funds deemed by those services to have similar objectives. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


36


GMO Flexible Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


37


GMO Flexible Equities Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.70 %   $ 1,000.00     $ 1,326.20     $ 4.10    
2) Hypothetical     0.70 %   $ 1,000.00     $ 1,021.68     $ 3.57    
Class VI  
1) Actual     0.61 %   $ 1,000.00     $ 1,327.50     $ 3.58    
2) Hypothetical     0.61 %   $ 1,000.00     $ 1,022.13     $ 3.11    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2009, 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 Taiwan Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     95.3 %  
Short-Term Investments     3.2    
Other     1.5    
      100.0 %  
Industry Summary   % of Equity Investments  
Computers & Peripherals  
Computer Hardware     16.7 %  
Computer Storage & Peripherals     8.8    
Semiconductors & Semiconductor Equipment     23.2    
Electronic Equipment, Instruments & Components     19.6    
Chemicals     9.1    
Commercial Banks     5.2    
Metals & Mining     3.6    
Diversified Telecommunication Services     3.6    
Wireless Telecommunication Services     3.1    
Capital Markets     1.3    
Industrial Conglomerates     1.3    
Air Freight & Logistics     1.0    
Marine     0.9    
Leisure Equipment & Products     0.7    
Electrical Equipment     0.5    
Specialty Retail     0.5    
Construction Materials     0.3    
Oil, Gas & Consumable Fuels     0.1    
Hotels, Restaurants & Leisure     0.1    
Diversified Financial Services     0.1    
Multiline Retail     0.1    
Real Estate Management & Development     0.1    
Machinery     0.1    
Household Durables     0.0    
Office Electronics     0.0    
Food Products     0.0    
Automobiles     0.0    
IT Services     0.0    
Construction & Engineering     0.0    
Communications Equipment     0.0    
Textiles, Apparel & Luxury Goods     0.0    
      100.0 %  

 


1



GMO Taiwan Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 95.3%        
        Taiwan — 95.3%        
  77,770     Acer Inc     176,896    
  7,314     Altek Corp     12,047    
  5,084     Arima Computer Corp *      256    
  104,030     Asia Cement Corp     110,723    
  519,540     Asia Optical Co Inc     780,325    
  1,944,480     Asustek Computer Inc     3,088,841    
  3,287,874     AU Optronics Corp     3,274,485    
  518,000     Catcher Technology Co Ltd     1,335,561    
  3,201,394     Chi Mei Optoelectronics Corp *      1,567,768    
  4,686,000     China Bills Finance Corp     1,293,433    
  431,806     China Development Financial Holding Corp *      99,371    
  4,530     China Motor Corp *      2,494    
  4,456,992     China Steel Corp     4,042,190    
  8,304,628     Chinatrust Financial Holding Co Ltd     4,610,230    
  7,000     Chunghwa Picture Tubes Ltd *      775    
  2,344,525     Chunghwa Telecom Co Ltd     4,014,557    
  2,846,994     Compal Electronics Inc     2,866,305    
  5,700     Continental Engineering Corp     2,274    
  95,060     Coretronic Corp     109,712    
  71,000     CSBC Corp *      69,852    
  2,136     D-Link Corp     1,639    
  32,048     Delta Electronics Inc     85,500    
  384,774     DFI Inc     447,904    
  1,790,380     Dimerco Express Taiwan Corp     1,185,089    
  197,000     Epistar Corp     577,714    
  102,363     Far Eastern Department Stores Ltd     89,127    
  1,498,058     Far Eastern Textile Co Ltd     1,489,872    
  1,764,507     Far Eastone Telecommunications Co Ltd     1,989,776    
  1,445,584     Formosa Chemicals & Fibre Co     2,529,796    
  8,900     Formosa International Hotels Corp     105,569    
  46,759     Formosa Petrochemical Corp     110,952    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued        
  2,665,063     Formosa Plastics Corp     4,786,837    
  57,000     Foxconn Technology Co Ltd     145,217    
  113,000     Fubon Financial Holding Co Ltd *      105,355    
  2,000     Gigabyte Technology Co Ltd     1,562    
  49,973     Gloria Material Technology Corp     26,417    
  8,691,000     HannStar Display Corp *      1,818,123    
  515,366     High Tech Computer Corp     5,172,856    
  3,347,977     Hon Hai Precision Industry Co Ltd     11,272,367    
  1,000     Hotai Motor Company Ltd     2,249    
  42,000     Huaku Development Co Ltd     90,462    
  1,487,198     Innolux Display Corp     1,661,734    
  222,610     KGI Securities Co Ltd     93,970    
  25,594     Kinpo Electronics *      6,590    
  9,180     Largan Precision Co Ltd     111,391    
  738,369     Les Enphants Co Ltd     588,815    
  3,061,639     Lite-On Technology Corp     3,425,932    
  613,407     Macronix International Co Ltd     291,276    
  787,723     MediaTek Inc     11,418,290    
  5,250     Mercuries & Associates Ltd     1,943    
  1,132     Micro-Star International Co Ltd     702    
  2,056,000     Mitac International Corp     835,430    
  32,671     Motech Industries Inc     81,606    
  2,033,180     Nan Ya Plastics Corp     2,828,127    
  30,600     Nan Ya Printed Circuit Board Corp     99,746    
  1,000     Nien Hsing Textile Co Ltd     484    
  370,995     Novatek Microelectronics Corp Ltd     869,363    
  9,109     Oriental Union Chemical     5,180    
  874,750     Powertech Technology Inc     2,385,695    
  17,000     Prodisc Technology Inc *      300    
  10,800     Qisda Corp *      4,976    
  2,771,656     Quanta Computer Inc     5,736,232    
  9,840     Radiant Opto-Electronics Corp     12,522    
  14,802     Sampo Corp *      2,224    

 

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, 2009 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        Taiwan — continued        
  2,521     Shinkong Synthetic Fibers     596    
  1,444,000     Siliconware Precision Industries Co     1,789,886    
  231,290     Silitech Technology Corp     533,851    
  839,000     Sincere Navigation Corp     954,250    
  2,055,900     Synnex Technology International Corp     3,585,704    
  2,403     Systex Corp *      2,431    
  3,622,000     Taishin Financial Holding Co Ltd *      1,197,420    
  182,607     Taiwan Cement Corp     197,648    
  33,000     Taiwan Fertilizer Co Ltd     95,475    
  962,539     Taiwan Mobile Co Ltd     1,510,317    
  4,906,828     Taiwan Semiconductor Manufacturing Co Ltd     8,816,728    
  9,889     Tsann Kuen Enterprises Co Ltd     9,952    
  2,529     TXC Corp     3,072    
  54,000     U-Ming Marine Transport Corp     87,255    
  5,481     Uni-President Enterprises Corp     5,671    
  136,789     Unimicron Technology Corp     143,706    
  16,000     USI Corp     7,083    
  9,760     Wan Hai Lines Ltd *      4,838    
  381,933     Waterland Financial Holdings     116,364    
  1,994,857     Wistron Corp     3,860,758    
  2,968,195     Ya Hsin Industrial Co Ltd * (a) (b)      902    
  14,716     Yang Ming Marine Transport     5,466    
  3,084     Yieh Phui Enterprise     1,183    
  2,000     Yungtay Engineering Co Ltd     1,268    
    Total Taiwan     112,886,830    
    TOTAL COMMON STOCKS (COST $95,849,816)     112,886,830    
        SHORT-TERM INVESTMENTS — 3.2%        
  82,575     Bank of Ireland Time Deposit, 0.03%, due 09/01/09     82,575    
  1,000,000     BNP Paribas Time Deposit, 0.18%, due 09/01/09     1,000,000    
  1,000,000     HSBC Bank (USA) Time Deposit, 0.13%, due 09/01/09     1,000,000    

 

See accompanying notes to the financial statements.


4


GMO Taiwan Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
  1,000,000     Royal Bank of Canada Time Deposit, 0.15%, due 09/01/09     1,000,000    
  700,000     Societe Generale Time Deposit, 0.13%, due 09/01/09     700,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $3,782,575)     3,782,575    
    TOTAL INVESTMENTS — 98.5%
(Cost $99,632,391)		     116,669,405    
    Other Assets and Liabilities (net) — 1.5%     1,747,505    
    TOTAL NET ASSETS — 100.0%   $ 118,416,910    

 

Notes to Schedule of Investments:

*  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).

See accompanying notes to the financial statements.


5



GMO Taiwan Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $99,632,391) (Note 2)   $ 116,669,405    
Foreign currency, at value (cost $608,846) (Note 2)     608,818    
Dividends and interest receivable     1,445,968    
Total assets     118,724,191    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     93,824    
Shareholder service fee     17,375    
Trustees and Chief Compliance Officer of GMO Trust fees     288    
Accrued expenses     195,794    
Total liabilities     307,281    
Net assets   $ 118,416,910    
Net assets consist of:  
Paid-in capital   $ 150,445,072    
Accumulated undistributed net investment income     2,693,558    
Accumulated net realized loss     (51,754,931 )  
Net unrealized appreciation     17,033,211    
    $ 118,416,910    
Net assets attributable to:  
Class III shares   $ 118,416,910    
Shares outstanding:  
Class III     7,133,198    
Net asset value per share:  
Class III   $ 16.60    

 

See accompanying notes to the financial statements.


6


GMO Taiwan Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $898,891)   $ 3,559,474    
Interest     1,566    
Total investment income     3,561,040    
Expenses:  
Management fee (Note 3)     523,561    
Shareholder service fee – Class III (Note 3)     96,955    
Custodian and fund accounting agent fees     170,068    
Audit and tax fees     39,284    
Transfer agent fees     13,800    
Legal fees     2,392    
Trustees fees and related expenses (Note 3)     1,316    
Miscellaneous     1,748    
Total expenses     849,124    
Net investment income (loss)     2,711,916    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     3,585,499    
Foreign currency, forward contracts and foreign currency related transactions     78,170    
Net realized gain (loss)     3,663,669    
Change in net unrealized appreciation (depreciation) on:  
Investments     44,868,962    
Foreign currency, forward contracts and foreign currency related transactions     (1,989 )  
Net unrealized gain (loss)     44,866,973    
Net realized and unrealized gain (loss)     48,530,642    
Net increase (decrease) in net assets resulting from operations   $ 51,242,558    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 2,711,916     $ 5,422,735    
Net realized gain (loss)     3,663,669       (54,476,670 )  
Change in net unrealized appreciation (depreciation)     44,866,973       (38,083,635 )  
Net increase (decrease) in net assets from operations     51,242,558       (87,137,570 )  
Distributions to shareholders from:  
Net investment income  
Class III     (2,166,818 )     (2,600,079 )  
Net realized gains  
Class III     —       (7,935,155 )  
      (2,166,818 )     (10,535,234 )  
Net share transactions (Note 7):  
Class III     (31,084,114 )     (22,811,861 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     249,224       301,595    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (30,834,890 )     (22,510,266 )  
Total increase (decrease) in net assets     18,240,850       (120,183,070 )  
Net assets:  
Beginning of period     100,176,060       220,359,130    
End of period (including accumulated undistributed net investment
income of $2,693,558 and $2,148,460, respectively)		   $ 118,416,910     $ 100,176,060    

 

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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 11.06     $ 22.42     $ 30.98     $ 28.34     $ 26.79     $ 29.67    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.32       0.59       0.61       0.46       0.52       0.13    
Net realized and unrealized
gain (loss)		     5.47       (10.80 )     1.50       4.32       1.91       (1.45 )  
Total from investment
operations		     5.79       (10.21 )     2.11       4.78       2.43       (1.32 )  
Less distributions to shareholders:  
From net investment income     (0.25 )     (0.30 )     (0.85 )     (0.39 )     (0.59 )     —    
From net realized gains     —       (0.85 )     (9.82 )     (1.75 )     (0.29 )     (1.56 )  
Total distributions     (0.25 )     (1.15 )     (10.67 )     (2.14 )     (0.88 )     (1.56 )  
Net asset value, end
of period		   $ 16.60     $ 11.06     $ 22.42     $ 30.98     $ 28.34     $ 26.79    
Total Return(a)      52.47 %**      (47.14 )%     6.97 %(b)      17.12 %     9.13 %     (3.82 )%  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 118,417     $ 100,176     $ 220,359     $ 316,887     $ 291,250     $ 224,466    
Net expenses to average
daily net assets		     1.31 %*      1.32 %(c)      1.29 %(c)      1.26 %     1.28 %     1.34 %  
Net investment income to
average daily net assets		     4.20 %*      3.42 %     1.98 %     1.56 %     1.95 %     0.53 %  
Portfolio turnover rate     55 %**      88 %     94 %     41 %     31 %     88 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts:† 		   $ 0.03     $ 0.03     $ 0.06     $ 0.03     $ 0.04     $ 0.05    

 

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

†  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, 2009 (Unaudited)

1.  Organization

GMO Taiwan Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 Taiwan Index. The Fund typically makes equity investments in companies doing business in, or otherwise tied economically to, Taiwan. Under normal circumstances, the Fund invests at least 80% of its assets in investments tied economically to Taiwan. From time to time, the Fund may invest a significant portion of its assets in securities of issuers in industries with high positive correlations to one another (e.g., different industries within broad sectors, such as technology or financial services). The Fund generally seeks to be fully invested, and normally does not take temporary defensive positions through investment in cash and cash equivalents. If the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund is permitted to (but is not obligated to) use a wide variety of exchange - -traded and over-the-counter ("OTC") derivatives, including options, futures, warrants, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

As of August 31, 2009, shares of the Fund were not publicly offered and were principally available only to other series of the Trust and certain accredited investors. On July 17, 2009, the Fund filed an initial registration statement to seek to register its shares under the Securities Act of 1933.

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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported


10


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sal e, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 95.33% of the net assets of the Fund were valued using fair value prices based on models used by a third party vendor and are classified as using Level 2 inputs in the table below.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund considered certain bankrupt securities to be worthless.


11


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Common Stocks  
Taiwan   $ —     $ 112,885,928     $ 902     $ 112,886,830    
TOTAL COMMON STOCKS     —       112,885,928       902       112,886,830    
Short-Term Investments     3,782,575       —       —       3,782,575    
Total Investments   $ 3,782,575     $ 112,885,928     $ 902     $ 116,669,405    

 

The aggregate net value of the Fund's direct investments in securities using Level 3 inputs was less than 0.01% of total net assets.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Common Stocks  
Taiwan   $ 1,320     $ —     $ —     $ —     $ (118 )   $ (300 )   $ 902    
Total   $ 1,320     $ —     $ —     $ —     $ (118 )   $ (300 )   $ 902    

 

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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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


12


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset at a set


13


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.


14


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price


15


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards for U.S. federal income tax purposes. Therefore, no provision for U.S. federal income or excise tax is necessary. Taxes on Taiwan-source interest and dividend income are withheld in accordance with applicable Taiwanese law.

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.


16


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $32,757,923.

As of February 28, 2009, 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:

2/28/2017   $ (15,146,428 )  
Total   $ (15,146,428 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 103,841,063     $ 16,752,280     $ (3,923,938 )   $ 12,828,342    

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement


17


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis Ta iwanese 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

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

For the six-month period ended August 31, 2009, the premium on cash purchases of Fund shares was 0.15% of the amount invested and the fee on cash redemptions was 0.45% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by


18


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redempti on fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value, and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Foreign Investor Licensing Risk — The Fund's ability to continue to invest directly in Taiwan is subject to the risk that the Manager's QFII license or the Fund's sub-account under the Manager's QFII may be terminated or suspended by the Securities and Futures Commission. If the license were terminated or


19


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

suspended, the Fund could be required to liquidate or seek exposure to the Taiwanese market through the purchase of American Depositary and Global Depository Receipts, shares of other funds which are licensed to invest directly, or derivative instruments.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Focused Investment Risk — Focusing investments in countries, regions, or industries with high positive correlations to one another creates additional risk. This risk is particularly pronounced for the Fund because it principally invests in investments tied economically to a single country.

Other principal risks of an investment in the Fund include Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), Liquidity Risk (difficulty in selling Fund investments), Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments in companies with smaller market cap italizations), Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Leveraging Risk (increased risks from use of reverse repurchase agreements and other derivatives and securities lending), Market Disruption and Geopolitical Risk (the risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the ma rket value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.


20


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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 Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 for an amount equal to the fees and expenses incurred indirectly by the Fund through its investment in GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses, which 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 (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 (including an exchange-traded fund) or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Sections 3(c)(1) a nd 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 Chief Compliance Officer ("CCO") during the period ended August 31, 2009 was $1,040 and $552, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $67,712,202 and $101,559,911, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


21


GMO Taiwan Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, all of the outstanding shares of the Fund were held by two shareholders, each holding more than 10% of the Fund's outstanding shares.

As of August 31, 2009, 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 each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,170,348     $ 17,711,891       2,164,635     $ 25,246,074    
Shares issued to shareholders
in reinvestment of distributions		     137,663       2,166,818       646,035       10,535,234    
Shares repurchased     (3,230,445 )     (50,962,823 )     (3,583,100 )     (58,593,169 )  
Purchase premiums     —       24,933       —       37,926    
Redemption fees     —       224,291       —       263,669    
Net increase (decrease)     (1,922,434 )   $ (30,834,890 )     (772,430 )   $ (22,510,266 )  

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure.


22



GMO Taiwan Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager,


23


GMO Taiwan Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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, including the effect of recent market events and changes in assets under management and revenues on such profits. 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 incr ease assets under management by, for example, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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.


24


GMO Taiwan Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


25


GMO Taiwan Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     1.31 %   $ 1,000.00     $ 1,524.70     $ 8.34    
2) Hypothetical     1.31 %   $ 1,000.00     $ 1,018.60     $ 6.67    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


26



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Semiannual Report

August 31, 2009


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 (617) 346-7646 (collect).



GMO Special Purpose Holding Fund

(A Series of GMO Trust)
Consolidated Investments Concentration Summary (a)
August 31, 2009 (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, 2009 (Unaudited)

Shares   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)     —    
        SHORT-TERM INVESTMENTS — 10.9%  
        Money Market Funds — 10.9%  
      18,968     State Street Institutional Liquid Reserves Fund-Institutional Class     18,968    
      18,968     State Street Institutional Treasury Plus Money Market Fund-Institutional Class     18,968    
    TOTAL SHORT-TERM INVESTMENTS (COST $37,936)     37,936    
        TOTAL INVESTMENTS — 10.9%
(Cost $37,936)		     37,936    
        Other Assets and Liabilities (net) — 89.1%     309,619    
    TOTAL NET ASSETS — 100.0%   $ 347,555    

 

Notes to Consolidated 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, 2009 (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)		   $ 217,535     $ —     $ —     $ (217,535 )   $ —    
Investments in unaffiliated issuers,
at value (cost $37,936) (Note 2)		     37,936       —       —       —       37,936    
Cash     154,372       339,134       —       —       493,506    
Dividends receivable     5       —       —       —       5    
Receivable for expenses reimbursed
by Manager (Note 3)		     4,867       3,255       —       —       8,122    
Total assets     414,715       342,389       —       (217,535 )     539,569    
Liabilities:  
Accrued expenses     67,160       56,562       —       —       123,722    
Minority interest     —       —       68,292       —       68,292    
Total liabilities     67,160       56,562       68,292       —       192,014    
Net assets   $ 347,555     $ 285,827     $ (68,292 )   $ (217,535 )   $ 347,555    
Shares outstanding     554,071                               554,071    
Net asset value per share   $ 0.63                             $ 0.63    

 

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, 2009 (Unaudited)

    GMO
Special Purpose
Holding Fund		   GMO
SPV I, LLC		   Minority
Interest		   Eliminations   Consolidated
Totals		  
Investment Income:  
Interest   $ —     $ —     $ —     $ —     $ —    
Dividends     47       —       —       —       47    
Total income     47       —       —       —       47    
Expenses:  
Legal fees     —       86,552       —       —       86,552    
Audit and tax fees     28,336       5,336       —       —       33,672    
Custodian and transfer agent fees     552       13,800       —       —       14,352    
Trustees fees and related expenses (Note 3)     3       —       —       —       3    
Miscellaneous     —       184       —       —       184    
Total expenses     28,891       105,872       —       —       134,763    
Fees and expenses reimbursed by
Manager (Note 3)		     (28,888 )     (19,320 )     —       —       (48,208 )  
Expense Reduction     (3 )     (10 )                 (13 )  
Net expenses     —       86,542       —       —       86,542    
Net income (loss)     47       (86,542 )     —       —       (86,495 )  
Minority Interest     —       —       20,688       —       20,688    
Net investment income (loss)
after minority interest		     47       (86,542 )     20,688       —       (65,807 )  
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     —       —       —       —       —    
Realized gains distributions from
affiliated issuers		     —       —       —       —       —    
Net realized gain (loss)     —       —       —       —       —    
Change in net unrealized appreciation
(depreciation) on:		  
Investments     (59,327 )     —       —       59,327       —    
Net unrealized gain (loss)     (59,327 )     —       —       59,327       —    
Net realized and unrealized gain (loss)     (59,327 )     —       —       59,327       —    
Minority interest in realized and
unrealized gain (loss)		     —       —       6,527       —       6,527    
Net increase (decrease) in net assets
resulting from operations		   $ (59,280 )   $ (86,542 )   $ 27,215     $ 59,327     $ (59,280 )  

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ (65,807 )   $ 1,220    
Net realized gain (loss)     —       1,294,501    
Change in net unrealized appreciation (depreciation)     —       —    
      (65,807 )     1,295,721    
Minority Interest     6,527       (330,967 )  
Net increase (decrease) in net assets from operations     (59,280 )     964,754    
Cash distributions to shareholders     —       (1,254,756 )  
      —       (1,254,756 )  
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     (59,280 )     (290,002 )  
Net assets:  
Beginning of period     406,835       696,837    
End of period   $ 347,555     $ 406,835    

 

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, 2009		   Year Ended February 28/29,  
    (Unaudited)(a)    2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 0.73     $ 1.26     $ 1.41     $ 8.22     $ 15.51     $ 24.11    
Income from investment operations:  
Net investment income (loss)†      (0.12 )     0.00 (b)      0.06       0.02       (0.08 )     0.41    
Net realized and unrealized
gain (loss)		     0.02       1.73       6.28       41.16       8.57       9.08    
Total from investment
operations		     (0.10 )     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   $ 0.63     $ 0.73     $ 1.26     $ 1.41     $ 8.22     $ 15.51    
Total Return(c)(d)      (13.70 )%**      137.67 %     517.54 %     3613.95 %     124.75 %     36.35 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 348     $ 407     $ 697     $ 780     $ 4,553     $ 8,595    
Net expenses to average daily net
assets		     31.91 %*(e)      0.81 %     0.00 %(f)      0.85 %     1.26 %     (0.01 )%  
Net investment income to average
daily net assets		     (32.40 )%*      0.25 %     3.91 %     1.05 %     (0.65 )%     1.83 %  
Portfolio turnover rate     0 %**      0 %     0 %     0 %     0 %     0 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     21.35 %*      15.56 %     8.84 %     3.74 %     1.39 %     0.67 %  

 

(a)  For the period ended August 31, 2009, the Fund's financial results are reflective of a legal expense adjustment related to pending litigation against various entities related to the default of the NPF Securities. See Note 1.

(b)  Net investment income (loss) was 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.

(d)  Had the effect of reinvested distributions not been assumed and income from investment operations been retained, the total returns would have been (0.11)% for the six months ended August 31, 2009, 1.93%, 7.61%, 97.84%, 25.27%, and 39.36% for the fiscal years ended 2009, 2008, 2007, 2006, and 2005, respectively.

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

(f)  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 Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Special Purpose Holding Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 act. 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 investments consist primarily of: (i) units of GMO SPV I, LLC ("SPV"), a special purpose vehicle that holds an interest in liquidating trusts (described below) related to certain defaulted asset-backed securities (the "NPF Securities") issued by NPF VI, Inc. and NPF XII, Inc. (the "Issuers"), 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. The cash items and high quality debt securities in which the Fund may invest may include securities issued by the U.S. government and agencies thereof (including securities neither guaranteed nor insured by the U.S. government), bankers' acceptances, commercial paper, bank certificates of deposit, and money market mutual funds. The Fund is also permitted to invest in debt securities of any quality or type, including governmental and corporate and other private issuers.

The Fund's principal investment is units of SPV, which in turn holds an interest in liquidating trusts related to the NPF Securities. In November 2002, National Century Financial Enterprises, which organized and administered the Issuers and the NPF Securities, defaulted on its obligations with respect to the NPF Securities (health care asset-backed receivables). The NPF Securities had been acquired by the Fund prior to this default.

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

The Fund has litigation pending against various entities related to the default of the NPF Securities. For the six-month period ended August 31, 2009, the Fund received no distributions in conjunction with a settlement agreement related to the default of those securities. The outcome of the lawsuits against the remaining defendants is not known and any potential recoveries are not reflected in the net asset value of


7


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the Fund. To the extent additional recoveries are realized, such recoveries may be material to the net asset value of the Fund.

Shares of the Fund are not publicly offered and are principally available only to other series 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.

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 (i) the last sale price or (ii) official closing price on each business day, or (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the manager deems the price in the private market to be more relevant in determining market value than the price on an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) for which quotations are not readily available or whose values the Manager has determined to be unreliable are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale.


8


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund valued interests related to bankruptcy proceedings to be worthless (See Note 1).

The following is a summary of the fair valuations according to inputs used as of August 31, 2009 in valuing the Fund's investments at value:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Debt Obligations   $ —     $ —     $ 0 *   $ —    
Short-Term Investments   $ —     $ 37,936     $ —     $ 37,936    
Total Investments   $ —     $ 37,936     $ —     $ 37,936    

 

*  Represents the interest in securities that are defaulted and have no value at February 28, 2009 or August 31, 2009.

Taxes

Effective April 1, 2004, the Fund elected to be treated as a partnership for U.S. federal income tax purposes. As a partnership, the Fund is not itself subject to federal income tax. Instead, each shareholder is required to take into account in determining its tax liability its distributive share of items of Fund income, gain, loss, deduction, credit, and tax preference for each taxable year substantially as though such items have been realized directly by the shareholder and without regard to whether any distribution by the Fund has been or will be received. Accordingly, no provision (benefit) for federal and state income taxes is reflected in the accompanying financial statements.


9


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, 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)		  
$ 37,936     $ —     $ —     $ —    

 

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

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Interest income is recorded on the accrual basis and is adjusted for the amortization of premiums and accretion of discounts. Coupon income is not recognized on securities for which collection is not expected. In determining the net gain or loss on securities sold, the Fund uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.


10


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value, and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Litigation-Related Risk — The ultimate amount of the Fund's recovery (through its investment in SPV) of losses on the defaulted NPF Securities and the total costs the Fund may incur with respect to its funding of litigation related to the NPF Securities is unknown at this time. Therefore, the Fund is subject to the risk that SPV may ultimately be unable to recover certain losses related to the NPF Securities.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. Liquidity risk is particularly pronounced for the Fund due to the nature and size of its investment in the NPF Securities (through the SPV).

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Credit Risk — This is the risk that the issuer or guarantor of a fixed income security will be unable or unwilling to make timely principal, interest, or settlement payments or otherwise to honor its obligations. This risk is particularly acute in environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions. The Fund is subject to this risk to the extent that it directly or indirectly acquires or holds below investment grade securities.

Other principal risks of an investment in the Fund include Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally) and Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133


11


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.

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 expenses incurred by the Fund through at least June 30, 2010 (excluding fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fund) 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, extraor dinary, 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 and are therefore not reimbursable by the Manager.

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, 2009 was $3 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, 2009.

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


12


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Consolidated Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 61.72% 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.

As of August 31, 2009, no shares of the Fund were held by senior management of the Manager and GMO Trust officers, and 99.95% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Shares sold     —       —    
Shares repurchased     —       —    
Net decrease     —       —    
Fund shares:  
Beginning of period     554,071       554,071    
End of period     554,071       554,071    

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


13



GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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 respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal


14


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

trading of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considered the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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 15, 2009, 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, 2009.


15


GMO Special Purpose Holding Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs; and (2) ongoing costs, 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, 2009 through August 31, 2009.

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* 		  
1) Actual     31.91 %   $ 1,000.00     $ 863.00     $ 149.84    
2) Hypothetical     31.91 %   $ 1,000.00     $ 864.34     $ 149.95    

 

*  Expenses are calculated using each annualized expense ratio for the six months ended August 31, 2009, 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, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.3 %  
Short-Term Investments     3.5    
Futures Contracts     0.1    
Other     0.1    
      100.0 %  
Industry Group Summary   % of Equity Investments  
Pharmaceuticals, Biotechnology & Life Sciences     16.7 %  
Technology Hardware & Equipment     14.2    
Software & Services     13.0    
Food, Beverage & Tobacco     12.9    
Household & Personal Products     7.9    
Retailing     7.4    
Food & Staples Retailing     6.3    
Health Care Equipment & Services     5.9    
Capital Goods     3.9    
Consumer Services     3.0    
Energy     2.8    
Semiconductors & Semiconductor Equipment     1.0    
Transportation     1.0    
Materials     1.0    
Insurance     0.7    
Diversified Financials     0.5    
Consumer Durables & Apparel     0.5    
Telecommunication Services     0.4    
Commercial & Professional Services     0.4    
Media     0.2    
Utilities     0.2    
Banks     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, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.3%  
        Banks — 0.1%  
    2,800     First Horizon National Corp. *      37,464    
        Capital Goods — 3.7%  
    8,500     3M Co.     612,850    
    700     Carlisle Cos., Inc.     23,093    
    1,000     Cooper Industries Ltd.-Class A     32,250    
    2,100     Goodrich Corp.     115,836    
    2,300     Lennox International, Inc.     82,524    
    1,100     Lockheed Martin Corp.     82,478    
    2,900     Toro Co. (The)     109,997    
    6,700     United Technologies Corp.     397,712    
    3,100     URS Corp. *      134,013    
    1,200     W.W. Grainger, Inc.     104,964    
    Total Capital Goods     1,695,717    
        Commercial & Professional Services — 0.3%  
    6,200     Robert Half International, Inc.     162,998    
        Consumer Durables & Apparel — 0.5%  
    1,900     Nike, Inc.-Class B     105,241    
    2,900     Phillips-Van Heusen Corp.     109,562    
    Total Consumer Durables & Apparel     214,803    
        Consumer Services — 2.9%  
    1,400     Apollo Group, Inc.-Class A *      90,748    
    8,900     Brinker International, Inc.     129,584    
    1,200     Career Education Corp. *      28,500    
    900     Choice Hotels International, Inc.     26,550    
    1,500     Darden Restaurants, Inc.     49,395    
    1,200     ITT Educational Services, Inc. *      125,988    
    13,000     McDonald's Corp.     731,120    
    7,100     Starbucks Corp. *      134,829    
    Total Consumer Services     1,316,714    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Diversified Financials — 0.5%  
    300     Goldman Sachs Group (The), Inc.     49,638    
    6,600     Morgan Stanley     191,136    
    Total Diversified Financials     240,774    
        Energy — 2.7%  
    13,400     Exxon Mobil Corp.     926,610    
    5,300     Frontier Oil Corp.     67,999    
    16,000     Tesoro Corp.     225,280    
    Total Energy     1,219,889    
        Food & Staples Retailing — 6.1%  
    4,100     Costco Wholesale Corp.     209,018    
    3,800     CVS Caremark Corp.     142,576    
    6,600     Kroger Co. (The)     142,494    
    15,200     Sysco Corp.     387,448    
    27,600     Wal-Mart Stores, Inc.     1,404,012    
    13,600     Walgreen Co.     460,768    
    Total Food & Staples Retailing     2,746,316    
        Food, Beverage & Tobacco — 12.4%  
    25,384     Altria Group, Inc.     464,019    
    3,700     Brown-Forman Corp.-Class B     165,464    
    4,700     Campbell Soup Co.     147,392    
    23,000     Coca-Cola Co. (The)     1,121,710    
    11,400     Dean Foods Co. *      206,796    
    1,400     Flowers Foods, Inc.     33,278    
    3,700     General Mills, Inc.     221,001    
    5,100     Hansen Natural Corp. *      166,566    
    5,300     Hershey Co. (The)     207,919    
    3,700     HJ Heinz Co.     142,450    
    3,600     Hormel Foods Corp.     133,020    
    1,000     JM Smucker Co. (The)     52,270    
    4,900     Kellogg Co.     230,741    
    1,200     Kraft Foods, Inc.-Class A     34,020    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Food, Beverage & Tobacco — continued  
    4,900     Lorillard, Inc.     356,573    
    5,700     McCormick & Co., Inc. (Non Voting)     185,649    
    1,500     Pepsi Bottling Group (The), Inc.     53,595    
    19,400     PepsiCo, Inc.     1,099,398    
    12,784     Philip Morris International, Inc.     584,357    
    Total Food, Beverage & Tobacco     5,606,218    
        Health Care Equipment & Services — 5.7%  
    10,300     AmerisourceBergen Corp.     219,493    
    5,600     Baxter International, Inc.     318,752    
    1,900     Cerner Corp. *      117,249    
    3,200     Cigna Corp.     94,176    
    4,700     Coventry Health Care, Inc. *      102,601    
    800     Edwards Lifesciences Corp. *      49,504    
    5,700     Humana, Inc. *      203,490    
    2,200     Lincare Holdings, Inc. *      58,058    
    4,000     McKesson Corp.     227,440    
    14,200     Medtronic, Inc.     543,860    
    6,600     Omnicare, Inc.     151,074    
    3,300     Quest Diagnostics, Inc.     178,068    
    3,394     UnitedHealth Group, Inc.     95,032    
    4,100     WellPoint, Inc. *      216,685    
    Total Health Care Equipment & Services     2,575,482    
        Household & Personal Products — 7.6%  
    5,300     Alberto-Culver Co.     139,867    
    7,300     Avon Products, Inc.     232,651    
    3,300     Church & Dwight Co., Inc.     188,529    
    7,000     Clorox Co.     413,630    
    7,300     Colgate-Palmolive Co.     530,710    
    900     Energizer Holdings, Inc. *      58,887    
    3,800     Estee Lauder Cos. (The), Inc.-Class A     136,230    
    6,200     Kimberly-Clark Corp.     374,852    
    24,800     Procter & Gamble Co. (The)     1,341,928    
    Total Household & Personal Products     3,417,284    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Insurance — 0.7%  
    2,300     Brown & Brown, Inc.     45,701    
    2,000     Fidelity National Financial, Inc.-Class A     30,040    
    1,900     Prudential Financial, Inc.     96,102    
    6,100     W.R. Berkley Corp.     155,855    
    Total Insurance     327,698    
        Materials — 1.0%  
    3,000     Ball Corp.     145,380    
    1,300     International Flavors & Fragrances, Inc.     46,306    
    6,100     Scotts Miracle-Gro Co. (The)-Class A     248,209    
    Total Materials     439,895    
        Media — 0.2%  
    2,500     McGraw-Hill Cos. (The), Inc.     84,025    
        Pharmaceuticals, Biotechnology & Life Sciences — 16.1%  
    21,500     Abbott Laboratories     972,445    
    11,900     Amgen, Inc. *      710,906    
    5,000     Biogen Idec, Inc. *      251,050    
    35,200     Bristol-Myers Squibb Co.     778,976    
    11,500     Eli Lilly & Co.     384,790    
    9,400     Gilead Sciences, Inc. *      423,564    
    28,464     Johnson & Johnson     1,720,364    
    20,400     Merck & Co., Inc.     661,572    
    400     Millipore Corp. *      26,492    
    18,000     Mylan, Inc. *      264,060    
    26,176     Pfizer, Inc.     437,139    
    10,900     Schering-Plough Corp.     307,162    
    1,000     Watson Pharmaceuticals, Inc. *      35,290    
    6,200     Wyeth     296,670    
    Total Pharmaceuticals, Biotechnology & Life Sciences     7,270,480    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Retailing — 7.1%  
    4,000     Advance Auto Parts, Inc.     169,200    
    600     Amazon.com, Inc. *      48,714    
    9,300     American Eagle Outfitters, Inc.     125,550    
    2,000     AutoNation, Inc. *      37,960    
    1,660     AutoZone, Inc. *      244,435    
    6,700     Bed Bath & Beyond, Inc. *      244,416    
    2,800     Best Buy Co., Inc.     101,584    
    4,000     Dollar Tree, Inc. *      199,760    
    8,400     Family Dollar Stores, Inc.     254,352    
    2,600     Foot Locker, Inc.     27,716    
    4,000     Home Depot, Inc.     109,160    
    7,200     Kohl's Corp. *      371,448    
    12,768     Lowe's Cos., Inc.     274,512    
    1,800     Nordstrom, Inc.     50,472    
    4,300     O'Reilly Automotive, Inc. *      164,604    
    9,900     PetSmart, Inc.     207,009    
    2,500     Ross Stores, Inc.     116,600    
    4,500     Sherwin-Williams Co. (The)     270,900    
    2,900     Staples, Inc.     62,669    
    1,900     Target Corp.     89,300    
    1,600     Williams-Sonoma, Inc.     30,608    
    Total Retailing     3,200,969    
        Semiconductors & Semiconductor Equipment — 1.0%  
    2,800     Broadcom Corp.-Class A *      79,660    
    6,700     Cypress Semiconductor Corp. *      67,804    
    13,108     Intel Corp.     266,355    
    1,500     Novellus System, Inc. *      28,740    
    Total Semiconductors & Semiconductor Equipment     442,559    
        Software & Services — 12.5%  
    3,500     Affiliated Computer Services, Inc.-Class A *      156,800    
    2,000     Citrix Systems, Inc. *      71,360    
    8,800     Fidelity National Information Services, Inc.     216,128    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Software & Services — continued  
    2,500     Fiserv, Inc. *      120,625    
    2,360     Google, Inc.-Class A *      1,089,541    
    11,000     IAC/InterActiveCorp *      203,720    
    7,100     Intuit, Inc. *      197,167    
    3,600     McAfee, Inc. *      143,208    
    92,800     Microsoft Corp.     2,287,520    
    52,800     Oracle Corp.     1,154,736    
    Total Software & Services     5,640,805    
        Technology Hardware & Equipment — 13.6%  
    6,260     Apple, Inc. *      1,052,995    
    1,400     Arrow Electronics, Inc. *      38,696    
    2,400     Avnet, Inc. *      63,960    
    64,700     Cisco Systems, Inc. *      1,397,520    
    600     F5 Networks, Inc. *      20,694    
    22,100     Hewlett-Packard Co.     992,069    
    13,980     International Business Machines Corp.     1,650,339    
    16,300     Qualcomm, Inc.     756,646    
    10,500     SanDisk Corp. *      185,850    
    Total Technology Hardware & Equipment     6,158,769    
        Telecommunication Services — 0.4%  
    2,645     AT&T, Inc.     68,902    
    1,400     CenturyTel, Inc.     45,122    
    6,700     Frontier Communications Corp.     47,637    
    3,600     Windstream Corp.     30,852    
    Total Telecommunication Services     192,513    
        Transportation — 1.0%  
    40,400     AMR Corp. *      220,584    
    9,200     Delta Air Lines, Inc. *      66,424    
    2,900     United Parcel Service, Inc.-Class B     155,034    
    Total Transportation     442,042    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Utilities — 0.2%  
    3,800     NV Energy, Inc.     45,828    
    800     PG&E Corp.     32,472    
    Total Utilities     78,300    
    TOTAL COMMON STOCKS (COST $42,554,489)     43,511,714    
        SHORT-TERM INVESTMENTS — 3.5%  
        Money Market Funds — 3.5%  
    1,563,843     State Street Institutional Treasury Money Market Fund-Institutional Class     1,563,843    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,563,843)     1,563,843    
            TOTAL INVESTMENTS — 99.8%
(Cost $44,118,332)		     45,075,557    
            Other Assets and Liabilities (net) — 0.2%     100,066    
    TOTAL NET ASSETS — 100.0%   $ 45,175,623    

 

See accompanying notes to the financial statements.


8


GMO U.S. Growth Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  18     S&P 500 E-Mini Index   September 2009   $ 917,730     $ 67,264    

 

As of August 31, 2009, 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.


9



GMO U.S. Growth Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $44,118,332) (Note 2)   $ 45,075,557    
Dividends receivable     101,357    
Foreign taxes receivable     50    
Receivable for collateral on open futures contracts (Note 2)     81,000    
Receivable for expenses reimbursed by Manager (Note 3)     9,889    
Total assets     45,267,853    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     11,808    
Shareholder service fee     5,638    
Administration fee – Class M     99    
Trustees and Chief Compliance Officer of GMO Trust fees     32    
Payable for 12b-1 fee – Class M     249    
Payable for variation margin on open futures contracts (Note 2)     6,930    
Accrued expenses     67,474    
Total liabilities     92,230    
Net assets   $ 45,175,623    
Net assets consist of:  
Paid-in capital   $ 71,524,685    
Accumulated undistributed net investment income     125,261    
Accumulated net realized loss     (27,498,812 )  
Net unrealized appreciation     1,024,489    
    $ 45,175,623    
Net assets attributable to:  
Class III shares   $ 44,581,529    
Class M shares   $ 594,094    
Shares outstanding:  
Class III     3,351,595    
Class M     44,766    
Net asset value per share:  
Class III   $ 13.30    
Class M   $ 13.27    

 

See accompanying notes to the financial statements.


10


GMO U.S. Growth Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends   $ 489,095    
Total investment income     489,095    
Expenses:  
Management fee (Note 3)     63,699    
Shareholder service fee – Class III (Note 3)     30,391    
12b-1 fee – Class M (Note 3)     717    
Administration fee – Class M (Note 3)     573    
Audit and tax fees     28,152    
Custodian, fund accounting agent and transfer agent fees     25,484    
Registration fees     11,776    
Legal fees     736    
Trustees fees and related expenses (Note 3)     439    
Miscellaneous     368    
Total expenses     162,335    
Fees and expenses reimbursed by Manager (Note 3)     (66,332 )  
Net expenses     96,003    
Net investment income (loss)     393,092    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (6,488,521 )  
Closed futures contracts     74,553    
Net realized gain (loss)     (6,413,968 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     15,743,464    
Open futures contracts     218,814    
Net unrealized gain (loss)     15,962,278    
Net realized and unrealized gain (loss)     9,548,310    
Net increase (decrease) in net assets resulting from operations   $ 9,941,402    

 

See accompanying notes to the financial statements.


11


GMO U.S. Growth Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 393,092     $ 1,166,736    
Net realized gain (loss)     (6,413,968 )     (16,522,474 )  
Change in net unrealized appreciation (depreciation)     15,962,278       (440,166 )  
Net increase (decrease) in net assets from operations     9,941,402       (15,795,904 )  
Distributions to shareholders from:  
Net investment income  
Class III     (358,414 )     (1,064,873 )  
Class M     (4,276 )     (246,973 )  
Total distributions from net investment income     (362,690 )     (1,311,846 )  
Net share transactions (Note 7):  
Class III     378,700       (77,034,776 )  
Class M     (64,884 )     (68,971,923 )  
Increase (decrease) in net assets resulting from net share
transactions		     313,816       (146,006,699 )  
Total increase (decrease) in net assets     9,892,528       (163,114,449 )  
Net assets:  
Beginning of period     35,283,095       198,397,544    
End of period (including accumulated undistributed net investment
income of $125,261 and $94,859, respectively)		   $ 45,175,623     $ 35,283,095    

 

See accompanying notes to the financial statements.


12



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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 10.47     $ 15.82     $ 17.24     $ 18.17     $ 18.26     $ 19.03    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.12       0.18       0.17       0.15       0.15       0.16    
Net realized and unrealized
gain (loss)		     2.82       (5.32 )     (1.06 )     0.07       0.86       (0.02 )(a)   
Total from investment
operations		     2.94       (5.14 )     (0.89 )     0.22       1.01       0.14    
Less distributions to shareholders:  
From net investment income     (0.11 )     (0.21 )     (0.17 )     (0.15 )     (0.16 )     (0.14 )  
From net realized gains     —       —       (0.36 )     (1.00 )     (0.94 )     (0.77 )  
Total distributions     (0.11 )     (0.21 )     (0.53 )     (1.15 )     (1.10 )     (0.91 )  
Net asset value, end of period   $ 13.30     $ 10.47     $ 15.82     $ 17.24     $ 18.17     $ 18.26    
Total Return(b)      28.19 %**      (32.84 )%     (5.49 )%     1.24 %     5.64 %     0.94 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 44,582     $ 34,758     $ 129,666     $ 224,554     $ 342,203     $ 357,499    
Net expenses to average daily
net assets		     0.46 %*      0.46 %(c)      0.46 %(c)      0.46 %     0.48 %     0.48 %  
Net investment income to average
daily net assets		     1.92 %*      1.19 %     0.94 %     0.85 %     0.84 %     0.89 %  
Portfolio turnover rate     69 %**      70 %     97 %     111 %     94 %     136 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.32 %*      0.19 %     0.07 %     0.05 %     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.


13


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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 10.45     $ 15.76     $ 17.16     $ 18.10     $ 18.19     $ 18.97    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.10       0.13       0.11       0.10       0.10       0.11    
Net realized and unrealized
gain (loss)		     2.81       (5.30 )     (1.05 )     0.06       0.85       (0.02 )(a)   
Total from investment
operations		     2.91       (5.17 )     (0.94 )     0.16       0.95       0.09    
Less distributions to shareholders:  
From net investment income     (0.09 )     (0.14 )     (0.10 )     (0.10 )     (0.10 )     (0.10 )  
From net realized gains     —       —       (0.36 )     (1.00 )     (0.94 )     (0.77 )  
Total distributions     (0.09 )     (0.14 )     (0.46 )     (1.10 )     (1.04 )     (0.87 )  
Net asset value, end of period   $ 13.27     $ 10.45     $ 15.76     $ 17.16     $ 18.10     $ 18.19    
Total Return(b)      27.96 %**      (33.01 )%     (5.79 )%     0.91 %     5.33 %     0.65 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 594     $ 525     $ 68,732     $ 85,714     $ 253,332     $ 269,227    
Net expenses to average daily
net assets		     0.76 %*      0.76 %(c)      0.76 %(c)      0.76 %     0.77 %     0.78 %  
Net investment income to average
daily net assets		     1.63 %*      0.80 %     0.64 %     0.56 %     0.54 %     0.61 %  
Portfolio turnover rate     69 %**      70 %     97 %     111 %     94 %     136 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.32 %*      0.10 %     0.07 %     0.05 %     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 U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO U.S. Growth Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the Russell 1000 Growth Index. The Fund typically makes equity investments in U.S. companies that issue stocks included in the Russell 1000 Index, a U.S. stock index, and in companies with similar market capitalizations. Under normal circumstances, the Fund invests at least 80% of its assets in investments tied economically to the U.S. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, futures, and swap contracts. The Fund also may invest in unaffilia ted money market funds and in GMO U.S. Treasury Fund.

Throughout the period ended August 31, 2009, 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 they bear.

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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported


15


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sal e, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

Asset Valuation Inputs   Investments
in Securities		   Other Financial
Instruments*		  
Level 1 - Quoted Prices   $ 43,511,714     $ 67,264    
Level 2 - Other Significant Observable Inputs     1,563,843       —    
Level 3 - Significant Unobservable Inputs     —       —    
Total   $ 45,075,557     $ 67,264    

 

*  Other financial instruments include futures contracts.


16


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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   $ —     $ —    

 

All of the Fund's common stocks are classified as Level 1. Please refer to the Schedule of Investments for a more detailed categorization of common stocks. All short-term investments are classified as Level 2.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. 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 various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.


17


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.


18


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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


19


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $4,390,997.

As of February 28, 2009, 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 )  
2/28/2017     (11,615,801 )  
Total   $ (15,241,485 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 44,968,483     $ 1,753,223     $ (1,646,149 )   $ 107,074    

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of


20


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 among the classes of shares of the Fund based on the relative net assets of each class. Shareholder service fees, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Market Risk — Growth Securities — Growth securities typically trade at higher multiples of current earnings than other securities. The market prices of growth securities are often more sensitive to market fluctuations because of their heavy dependence on future earnings expectations.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a


21


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

derivatives counterparty or borrower of the Fund's securities), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors and markets without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index).

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be


22


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictability of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.


23


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts* 		     —       —       —       67,264       —       67,264    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 67,264     $ —     $ 67,264    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


24


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       74,553       —       74,553    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 74,553     $ —     $ 74,553    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       218,814       —       218,814    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 218,814     $ —     $ 218,814    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures  
Average notional amount outstanding   $ 850,047    
Highest notional amount outstanding     935,180    
Lowest notional amount outstanding     734,200    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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.


25


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Holders of 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 net assets daily of Class M shares. Pursuant to a Rule 12b-1 distribution and service plan adopted by the Fund, holders of Class M shares of the Fund may pay a fee, at the annual rate of up to 1.00% of average daily net assets of Class M shares 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 net assets of Class M shares.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.31% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, administration fees, distribution (12b-1) fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an inve stment company (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.31% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.31% of the Fund's average daily net assets.

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, 2009 was $439 and $184, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $27,973,097 and $27,257,554, respectively.


26


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 92.52% of the outstanding shares of the Fund were held by one shareholder.

As of August 31, 2009, 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 had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     2,626     $ 30,777       108,893     $ 1,725,962    
Shares issued to shareholders
in reinvestment of distributions		     30,340       357,985       72,485       1,064,140    
Shares repurchased     (930 )     (10,062 )     (5,059,040 )     (79,824,878 )  
Net increase (decrease)     32,036     $ 378,700       (4,877,662 )   $ (77,034,776 )  

 


27


GMO U.S. Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class M:   Shares   Amount   Shares   Amount  
Shares sold     —     $ —       93,630     $ 1,517,398    
Shares issued to shareholders
in reinvestment of distributions		     363       4,275       15,520       246,973    
Shares repurchased     (5,854 )     (69,159 )     (4,419,327 )     (70,736,294 )  
Net increase (decrease)     (5,491 )   $ (64,884 )     (4,310,177 )   $ (68,971,923 )  

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


28



GMO U.S. Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature.


29


GMO U.S. Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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, including the effect of recent market events and c hanges in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 fa ctors, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


30


GMO U.S. Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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 15, 2009, 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, 2009.


31


GMO U.S. Growth Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     $ 1,281.90     $ 2.65    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.89     $ 2.35    
Class M  
1) Actual     0.76 %   $ 1,000.00     $ 1,279.60     $ 4.37    
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, 2009, 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, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     86.8 %  
Short-Term Investments     13.1    
Options Purchased     2.3    
Futures     0.6    
Loan Participations     0.2    
Loan Assignments     0.1    
Swaps     0.1    
Forward Currency Contracts     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Written Options     (0.7 )  
Reverse Repurchase Agreements     (2.4 )  
Other     (0.2 )  
      100.0 %  
Country/Region Summary**   % of Investments  
Euro Region***     89.2 %  
United Kingdom     20.0    
Canada     6.0    
Emerging     4.0    
Australia     2.9    
Sweden     0.5    
United States     (3.9 )  
Japan     (18.7 )  
      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 table is based on duration-adjusted exposures, taking into account the market value of securities and the notional amounts of swaps and other derivative contracts. Duration is based on the Manager's models. The greater the duration of a bond, the greater its contribution to the concentration percentage. Credit default swap exposures (both positive and negative) are factored into the duration-adjusted exposure using the reference security and applying the same methodology to that security.

***  The "Euro Region" is comprised of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia 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, 2009 (Unaudited)

Par Value /
Shares /
Principal Amount		   Description   Value ($)  
        DEBT OBLIGATIONS — 14.6%  
        France — 5.4%  
        Foreign Government Obligations  
EUR     5,000,000     Government of France, 4.00%, due 10/25/38     7,038,972    
        Germany — 6.1%  
        Foreign Government Obligations  
EUR     5,000,000     Republic of Deutschland, 4.75%, due 07/04/34 (a)      7,907,734    
        United States — 3.1%  
        U.S. Government  
USD     3,983,840     U.S. Treasury Inflation Indexed Bond, 0.88%, due 04/15/10 (a) (b)      3,977,617    
    TOTAL DEBT OBLIGATIONS (COST $17,837,642)     18,924,323    
        MUTUAL FUNDS — 81.5%  
        United States — 81.5%  
        Affiliated Issuers  
    547,014     GMO Emerging Country Debt Fund, Class III     4,212,006    
    4,332,356     GMO Short-Duration Collateral Fund     69,534,312    
    5,496     GMO Special Purpose Holding Fund (c)      3,462    
    429,172     GMO U.S. Treasury Fund     10,733,599    
    1,107,586     GMO World Opportunity Overlay Fund     21,442,864    
    Total United States     105,926,243    
    TOTAL MUTUAL FUNDS (COST $126,366,922)     105,926,243    
        OPTIONS PURCHASED — 0.1%  
        Currency Options — 0.1%  
EUR     30,000,000     EUR Interest Rate Call, Expires 05/18/10, Strike 2.31     197,235    
    TOTAL OPTIONS PURCHASED (COST $260,208)     197,235    

 

See accompanying notes to the financial statements.


2


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value ($) 		  Description   Value ($)  
        SHORT-TERM INVESTMENTS — 3.0%  
        Money Market Funds — 2.9%  
    3,774,372     State Street Institutional Treasury Plus Money Market
Fund-Institutional Class		     3,774,372    
        Other Short-Term Investments — 0.1%  
    100,000     U.S. Treasury Bill, 0.38%, due 07/29/10 (a) (d)      99,654    
    TOTAL SHORT-TERM INVESTMENTS (COST $3,874,009)     3,874,026    
        TOTAL INVESTMENTS — 99.2%
(Cost $148,338,781)		     128,921,827    
        Other Assets and Liabilities (net) — 0.8%     1,047,911    
    TOTAL NET ASSETS — 100.0%   $ 129,969,738    

 

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, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Sales #      
  10/06/09       EUR       10,600,000     $ 15,196,641     $ 62,483    

 

#  Fund sells foreign currency; buys USD.

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  13     Australian Government Bond 10 Yr.   September 2009   $ 1,147,128     $ 9,367    
  22     Australian Government Bond 3 Yr.   September 2009     1,904,233       (19,081 )  
  53     Canadian Government Bond 10 Yr.   December 2009     5,815,160       22,500    
  210     Euro Bund   September 2009     36,955,838       1,178,608    
  114     UK Gilt Long Bond   December 2009     22,013,252       62,619    
  2     U.S. Treasury Note 5 Yr. (CBT)   December 2009     230,500       996    
                $ 68,066,111     $ 1,255,009    
Sales      
  28     Euro BOBL   September 2009   $ 4,672,695     $ (38,564 )  
  15     Japanese Government
Bond 10 Yr. (TSE)		   September 2009     22,497,151       (424,730 )  
  8     U.S. Treasury Note 2 Yr. (CBT)   December 2009     1,730,750       (3,978 )  
  27     U.S. Treasury Note 10 Yr. (CBT)   December 2009     3,164,906       (18,222 )  
  1     U.S. Treasury Bond (CBT)   December 2009     119,750       (655 )  
                $ 32,185,252     $ (486,149 )  

 

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, 2009 (Unaudited)

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  28,000,000     USD   3/20/2014   Deutsche   (Pay)     1.70 %     0.71 %   Republic of   NA     $ (1,280,342 )  
            Bank AG         Italy        
  20,000,000     USD   3/20/2019   Deutsche
Bank AG		   Receive
 		    1.66 %
 		    0.77 %
 		  Republic of
Italy		   20,000,000
 		  USD
    1,479,710
 
    $ 199,368    
    Premiums to (Pay) Receive   $ —    

 

^  Receive - Fund receives premium and sells credit protection.
(Pay) - Fund pays premium and buys credit protection.

(1)  Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on the reference security, as of August 31, 2009, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider (i.e. higher) credit spreads represent a deterioration of the referenced entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(2)  The maximum potential amount the Fund could be required to make as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)#		   Fixed
Rate		   Variable Rate   Market
Value		  
  40,000,000     EUR   1/23/2012   Deutsche Bank AG   Receive     2.71 %   6 month EUR LIBOR   $ 597,579    
    $ 597,579    
    Premiums to (Pay) Receive   $ —    

 

#  Receive - Fund receives fixed rate and pays variable rate.
(Pay) - Fund pays fixed rate and receives variable rate.

As of August 31, 2009, 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, 2009 (Unaudited)

Notes to Schedule of Investments:

BOBL - Bundesobligationen

EUR LIBOR - London Interbank Offered Rate denominated in Euros.

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

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

(c)  Underlying investment represents interests in defaulted securities.

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

Currency Abbreviations:

EUR - Euro

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, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $21,971,859) (Note 2)   $ 22,995,584    
Investments in affiliated issuers, at value (cost $126,366,922) (Notes 2 and 8)     105,926,243    
Dividends and interest receivable     315,070    
Unrealized appreciation on open forward currency contracts (Note 2)     62,483    
Receivable for variation margin on open futures contracts (Note 2)     1,790,153    
Receivable for open swap contracts (Note 2)     2,077,289    
Receivable for expenses reimbursed by Manager (Note 3)     9,967    
Total assets     133,176,789    
Liabilities:  
Foreign currency due to custodian     6,826    
Payable for investments purchased     2,461    
Payable to affiliate for (Note 3):  
Management fee     27,161    
Shareholder service fee     16,297    
Trustees and Chief Compliance Officer of GMO Trust fees     267    
Payable to broker for closed futures contracts     1,797,792    
Payable for open swap contracts (Note 2)     1,280,342    
Accrued expenses     75,905    
Total liabilities     3,207,051    
Net assets   $ 129,969,738    
Net assets consist of:  
Paid-in capital   $ 160,081,547    
Distributions in excess of net investment income     (21,295,172 )  
Accumulated net realized gain     8,988,756    
Net unrealized depreciation     (17,805,393 )  
    $ 129,969,738    
Net assets attributable to:  
Class III shares   $ 129,969,738    
Shares outstanding:  
Class III     17,405,512    
Net asset value per share:  
Class III   $ 7.47    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 650,410    
Interest     298,975    
Dividends     5,901    
Total investment income     955,286    
Expenses:  
Management fee (Note 3)     159,937    
Shareholder service fee – Class III (Note 3)     95,962    
Audit and tax fees     34,776    
Custodian, fund accounting agent and transfer agent fees     29,072    
Legal fees     3,496    
Trustees fees and related expenses (Note 3)     1,250    
Registration fees     736    
Miscellaneous     1,011    
Total expenses     326,240    
Fees and expenses reimbursed by Manager (Note 3)     (67,528 )  
Expense reductions (Note 2)     (17 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (7,472 )  
Shareholder service fee waived (Note 3)     (2,758 )  
Net expenses     248,465    
Net investment income (loss)     706,821    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     7,639    
Closed futures contracts     (1,165,114 )  
Closed swap contracts     (33,109 )  
Foreign currency, forward contracts and foreign currency related transactions     (1,069,655 )  
Net realized gain (loss)     (2,260,239 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     1,168,400    
Investments in affiliated issuers     13,942,939    
Open futures contracts     505,749    
Open swap contracts     828,780    
Foreign currency, forward contracts and foreign currency related transactions     67,111    
Net unrealized gain (loss)     16,512,979    
Net realized and unrealized gain (loss)     14,252,740    
Net increase (decrease) in net assets resulting from operations   $ 14,959,561    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 706,821     $ 4,559,356    
Net realized gain (loss)     (2,260,239 )     4,849,166    
Change in net unrealized appreciation (depreciation)     16,512,979       (30,289,598 )  
Net increase (decrease) in net assets from operations     14,959,561       (20,881,076 )  
Distributions to shareholders from:  
Net investment income  
Class III     (4,307,890 )     (9,430,411 )  
Return of capital  
Class III     (2,492,110 )     —    
      (6,800,000 )     (9,430,411 )  
Net share transactions (Note 7):  
Class III     (5,378,862 )     1,411,572    
Redemption fees (Notes 2 and 7):  
Class III     107,884       29,275    
Total increase (decrease) in net assets resulting from net share
transactions and redemption fees		     (5,270,978 )     1,440,847    
Total increase (decrease) in net assets     2,888,583       (28,870,640 )  
Net assets:  
Beginning of period     127,081,155       155,951,795    
End of period (including distributions in excess of net investment
income of $21,295,172 and $17,694,103, respectively)		   $ 129,969,738     $ 127,081,155    

 

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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 7.00     $ 8.79     $ 9.21     $ 9.04     $ 9.59     $ 9.16    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.04       0.26       0.33       0.17       0.18       0.14    
Net realized and unrealized
gain (loss)		     0.82       (1.49 )     (0.62 )     0.15       0.39       0.44    
Total from investment
operations		     0.86       (1.23 )     (0.29 )     0.32       0.57       0.58    
Less distributions to shareholders:  
From net investment income     (0.24 )     (0.56 )     (0.01 )     —       (1.00 )(b)      (0.15 )  
From net realized gains     —       —       —       (0.14 )     (0.12 )     —    
Return of capital     (0.15 )     —       (0.12 )     (0.01 )     —       —    
Total distributions     (0.39 )     (0.56 )     (0.13 )     (0.15 )     (1.12 )     (0.15 )  
Net asset value, end of period   $ 7.47     $ 7.00     $ 8.79     $ 9.21     $ 9.04     $ 9.59    
Total Return(c)      12.62 %**      (13.93 )%     (3.08 )%     3.58 %     6.01 %     6.35 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 129,970     $ 127,081     $ 155,952     $ 274,422     $ 953,894     $ 1,015,009    
Net expenses to average daily
net assets(e) 		     0.39 %(d)*      0.39 %(d)      0.38 %(d)      0.39 %     0.39 %     0.39 %  
Net investment income to
average daily net assets(a) 		     1.10 %*      3.24 %     3.62 %     1.93 %     1.91 %     1.51 %  
Portfolio turnover rate     15 %**      28 %     55 %     25 %     49 %     44 %  
Fees and expenses reimbursed
and/or waived by the Manager
to average daily net assets:		     0.12 %*      0.13 %     0.09 %     0.06 %     0.06 %     0.09 %  
Redemption fees consisted of the
following per share amounts:† 		   $ 0.01     $ 0.00 (f)      —       —       —       —    

 

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

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

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

(f)  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.


10



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Currency Hedged International Bond Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 J.P. Morgan Non-U.S. Government Bond Index (Hedged) (ex-Japan). The Fund typically invests in bonds included in the Fund's benchmark and in securities and instruments with similar characteristics. The Fund seeks additional returns by seeking to exploit differences in global interest rates, sectors, and credit, currency, and emerging country debt markets. The Fund may implement its strategies: (i) synthetically by using exchange-traded and over-the-counter ("OTC") derivatives and investing in other series of the Trust and/or (ii) directly by purchasing bonds denominated in various currencies. The Fund has historically gained its investment exposure primarily through the use of derivatives and investments in other series of the Trust. As a result, the Fund has substantial holdings of GMO Short-Duration Collateral Fund ("SDCF") (a Fund that invests primarily in ass et-backed securities) and GMO World Opportunity Overlay Fund ("Overlay Fund") (a Fund that invests in asset-backed securities and uses derivatives to attempt to exploit misvaluations in world interest rates, currencies and credit markets). Under normal circumstances, the Fund invests directly or indirectly at least 80% of its assets in bonds. For these purposes, the term "bond" includes (i) obligations of an issuer to make payments of principal and/or interest on future dates and (ii) synthetic debt instruments created by the Manager by using a futures contract, swap contract, currency forward or option. To implement its investment strategies, the Fund may invest in or hold: 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; derivatives, including without limitation, futures contracts, currency options, currency forwards, credit default swaps and other swap contracts (to gain exposure to the global interest rate, credit, and currency markets); shares of SDCF (to gain exposure to asset-backed securities); shares of Overlay Fund (to attempt to exploit misvaluations in world interest rates, currencies, and credit markets); shares of GMO Emerging Country Debt Fund ("ECDF") (to gain exposure to sovereign debt of emerging countries); and shares of GMO U.S. Treasury Fund (for liquidity management purposes). Because of the deterioration in credit markets that became acute in 2008, the Fund through its investment in SDCF and Overlay Fund currently holds and may continue to hold material positions of below investment grade securities. This is in addition to the Fund' s emerging country debt investments. The Fund generally


11


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

attempts to hedge at least 75% of its net foreign currency exposure into U.S. dollars. The Fund also may invest in unaffiliated money market funds.

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). As of August 31, 2009, shares of SDCF, GMO Special Purpose Holding Fund ("SPHF") and Overlay Fund were not publicly available for direct purchase.

From prior to March 1, 2009 through July 12, 2009, the Fund had a policy to effect redemptions of its shares in-kind above de minimis levels. The Fund had established de minimis amounts below which redemptions would be honored for cash. Beginning July 13, 2009, the Fund had a policy to pay redemption requests with cash (less a redemption fee).

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.

As of August 31, 2009, a significant portion of the Fund's dividends received from other GMO funds is expected to be a return of capital for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" reported in the Statement of Operations has been reduced by the portion estimated to be a return of capital as of August 31, 2009. The estimated return of capital is $14,510,913. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the estimated return of capital. Furthermore, the "distributions to shareholders from return of capital" disclosed in the Statement of Changes in Net Assets and Financial Highlights are also estimates as of August 31, 2009. Both the dividends from affiliated issuers and distributions to shareholders from return of capital are subject to change and will not be finalized until February 28, 2010, the Fund's upcoming fiscal year - -end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). Unlisted securities for


12


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 20.15% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund utilizes third party valuation services (which use industry standard models and inputs from pricing vendors) to value credit default swaps.


13


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Debt Obligations  
Foreign Government Obligations   $ —     $ 14,946,706     $ —     $ 14,946,706    
U.S. Government     —       3,977,617       —       3,977,617    
TOTAL DEBT OBLIGATIONS     —       18,924,323       —       18,924,323    
Mutual Funds     14,945,605       90,980,638       —       105,926,243    
Options Purchased             197,235       —       197,235    
Short-Term Investments     99,654       3,774,372       —       3,874,026    
Total Investments     15,045,259       113,876,568       —       128,921,827    
Derivatives  
Forward Currency Contracts     —       62,483       —       62,483    
Futures Contracts     1,274,090       —       —       1,274,090    
Swap Agreements     —       597,579       1,479,710       2,077,289    
Total   $ 16,319,349     $ 114,536,630     $ 1,479,710     $ 132,335,689    

 

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical
Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Futures Contracts   $ (505,230 )   $ —     $ —     $ (505,230 )  
Swap Agreements     —       —       (1,280,342 )     (1,280,342 )  
Total   $ (505,230 )   $ —     $ (1,280,342 )   $ (1,785,572 )  

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (both direct and indirect) in securities and other financial instruments using Level 3 inputs were 56.59% and 0.01% of total net assets, respectively.


14


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
 of Level 3		   Balances
as of
August 31,
2009		  
Mutual Funds   $ 4,012     $ —     $ —     $ —     $ (550 )   $ (3,462 )   $ —    
Swaps     (50,843 )     33,109       —       (33,109 )     250,211       —       199,368    
Total   $ (46,831 )   $ 33,109     $ —     $ (33,109 )   $ 249,661     $ (3,462 )   $ 199,368    

 

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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. Forward currency contracts 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, 2009 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss associated with purchasing put and call options is limited to the premium paid. Options contracts purchased by the Fund and outstanding at the end of the period are listed in the Fund's Schedule of Investments.

The Fund may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.


16


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.


17


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to


18


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. The Fund had no reverse repurchase agreements outstanding at the end of the perio d.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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. The Fund is permitted to, and will from time to time, declare and pay distributions from net investment income, if any, more frequently (e.g. monthly). 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.


19


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $5,084,075.

As of February 28, 2009, 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:

2/28/2017   $ (3,082,431 )  
Total   $ (3,082,431 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 150,938,490     $ 1,094,182     $ (23,110,845 )   $ (22,016,663 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.


20


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 until August 2, 2009, the fee on cash redemptions was 2.00% of the amount redeemed. From August 3, 2009 through August 31, 2009, the fee on cash redemptions was 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relatin g to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to t he Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value, and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008.This summary is not intended to include


21


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security will be unable or unwilling to make timely principal, interest, or settlement payments or otherwise honor its obligations. This risk is particularly pronounced for the Fund because it typically uses OTC derivatives, including swap contracts with longer-term maturities, and may have significant exposure to a single counterparty. The risk of counterparty default is particularly acute in economic environments where financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. The Fund may be required to sell certain less liquid securities at distressed prices or meet redemption requests in-kind. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular the asset-backed securities held by the Fund through SDCF and Overlay Fund.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in underlying funds, including the risk that the underlying funds in which it invests will not perform as expected.

Other principal risks of an investment in the Fund include Foreign Investment Risk (risk that the market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Leveraging Risk (increased risks from use of reverse repurchase agreeme nts and other derivatives and securities lending), Currency Risk (risk that fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies), Focused Investment Risk (increased risk from the Fund's focus on investments in countries, regions, or sectors with high positive correlations to one another), and Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's


22


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

performance more than if the Fund were diversified. Certain of the above-referenced risks will be more pronounced for the Fund as a result of its investment in ECDF. For more information about reverse repurchase agreements and other derivatives, please refer to the descriptions of financial instruments (e.g. reverse repurchase agreements, swaps, futures and other types of derivative contracts) in Note 2 above as well as the discussion of the Fund's use of derivatives below.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of u nderlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underl ying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the


23


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

The Fund uses its cash balance to meet its collateral obligations and for other purposes. There is no assurance that the Fund's cash balance will be sufficient to meet those obligations. If it is not, the Fund would be required to liquidate portfolio positions. To manage the Fund's cash collateral needs, the Manager reserves the right to reduce or eliminate the Fund's derivative exposures. A reduction in those exposures may cause the performance of the 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.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund uses derivatives as a substitute for direct investment in securities or other assets. In particular, the Fund may use swaps (including credit default swaps) or other derivatives on an index, a single security or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.


24


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.


25


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


26


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options)		   $ 197,235     $ —     $ —     $ —     $ —     $ 197,235    
Unrealized appreciation on futures
contracts* 		     1,274,090       —       —       —       —       1,274,090    
Unrealized appreciation on forward
currency contracts		     —       62,483       —       —       —       62,483    
Unrealized appreciation on swap
agreements		     597,579       —       1,479,710       —       —       2,077,289    
Total   $ 2,068,904     $ 62,483     $ 1,479,710     $ —     $ —     $ 3,611,097    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on futures
contracts* 		     (505,230 )     —       —       —       —       (505,230 )  
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       (1,280,342 )     —       —       (1,280,342 )  
Total   $ (505,230 )   $ —     $ (1,280,342 )   $ —     $ —     $ (1,785,572 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


27


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     (1,165,114 )     —       —       —       —       (1,165,114 )  
Swaps contracts     —       —       (33,109 )     —       —       (33,109 )  
Written options     —       —       —       —       —       —    
Forward currency contracts     —       (1,180,027 )     —       —       —       (1,180,027 )  
Total   $ (1,165,114 )   $ (1,180,027 )   $ (33,109 )   $ —     $ —     $ (2,378,250 )  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ (62,973 )   $ —     $ —     $ —     $ —     $ (62,973 )  
Futures contracts     —       505,749       —       —       —       505,749    
Swaps contracts     578,569       —       250,211       —       —       828,780    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       62,483       —       —       —       62,483    
Total   $ 515,596     $ 568,232     $ 250,211     $ —     $ —     $ 1,334,039    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Futures   Swaps   Options  
Average notional amount outstanding   $ 11,745,403     $ 129,738,815     $ 113,067,325     $ 24,234,824    
Highest notional amount outstanding     15,196,641       265,874,202       116,710,000       42,893,909    
Lowest notional amount outstanding     —       90,433,361       105,191,879       —    

 

Other matters

SPHF, an investment of the Fund, has litigation pending against various entities related to the 2002 default of securities previously held by SPHF. The outcome of the lawsuits against the remaining defendants is not known and any potential recoveries are not reflected in the net asset value of SPHF.


28


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee is paid monthly at the annual rate of 0.25% of average daily net assets. The Fund has adopted a Shareholder Service Plan underwhich the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, an 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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) 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, 2010 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses); (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's Excluded Fund Fees and Expenses); and (c) the amount of fees and expenses incurred indirectly (through investment in other underlying funds) by the Fund through its (direct or indirect) investment in GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to such Fund equal to 0.25% of the Fund's average daily net assets.


29


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2009 , 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		  
  0.017 %     0.005 %     0.009 %     0.031 %  

 

        

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, 2009 was $1,066 and $644, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $43,652,194 and $18,800,000, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 90.60% 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.

As of August 31, 2009, 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 90.60% of the Fund's shares were held by accounts for which the Manager had investment discretion.


30


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     639     $ 4,508       1,419     $ 10,498    
Shares issued to shareholders
in reinvestment of distributions		     1,523       10,842       1,349,847       9,367,939    
Shares repurchased     (757,607 )     (5,394,212 )     (940,742 )     (7,966,865 )  
Redemption fees     —       107,884       —       29,275    
Net increase (decrease)     (755,445 )   $ (5,270,978 )     410,524     $ 1,440,847    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 3,145,736     $ 64,689     $ —     $ 64,689     $ —     $ 4,212,006    
GMO Short-Duration
Collateral Fund		     74,083,286       —       —       563,794       —       69,534,312    
GMO Special Purpose
Holding Fund		     4,012       —       —       —       —       3,462    
GMO U.S. Treasury Fund     —       29,521,927       18,800,000       21,927       —       10,733,599    
GMO World Opportunity
Overlay Fund		     20,324,202       —       —       —       —       21,442,864 o   
Totals   $ 97,557,236     $ 29,586,616     $ 18,800,000     $ 650,410     $ —     $ 105,926,243    

 

o  The Fund received return of capital distributions in the amount of $1,857,269.


31


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. On September 14, 2009, the Fund's redemption fee was eliminated.


32



GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered information provided by the Manager addressing the Fund's performance, including a performance attribution analysis. 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. The


33


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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. The Trustees noted 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 of the underlying funds 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


34


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


35


GMO Currency Hedged International Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including 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, 2009 through August 31, 2009.

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     $ 1,126.20     $ 2.25    
2) Hypothetical     0.42 %   $ 1,000.00     $ 1,023.09     $ 2.14    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, 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 Quality Fund

(formerly GMO U.S. Quality Equity Fund)

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


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

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     94.3 %  
Short-Term Investments     2.6    
Futures Contracts     0.0    
Other     3.1    
      100.0 %  
Country Summary   % of Equity Investments  
United States     89.9 %  
Switzerland     3.6    
United Kingdom     3.1    
France     2.3    
Netherlands     0.6    
Japan     0.5    
      100.0 %  
Industry Group Summary   % of Equity Investments  
Pharmaceuticals, Biotechnology & Life Sciences     24.6 %  
Software & Services     18.0    
Energy     11.6    
Food, Beverage & Tobacco     11.5    
Technology Hardware & Equipment     10.2    
Household & Personal Products     7.4    
Food & Staples Retailing     7.0    
Health Care Equipment & Services     3.2    
Telecommunication Services     2.2    
Capital Goods     2.0    
Retailing     1.1    
Consumer Durables & Apparel     0.6    
Consumer Services     0.6    
Transportation     0.0    
      100.0 %  

 


1



GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
            COMMON STOCKS — 94.3%          
        Capital Goods — 1.9%  
    2,123,200     3M Co.     153,082,720    
    1,417,100     United Technologies Corp.     84,119,056    
    Total Capital Goods     237,201,776    
        Consumer Durables & Apparel — 0.5%  
    1,192,900     Nike, Inc.-Class B     66,074,731    
        Consumer Services — 0.5%  
    1,141,300     McDonald's Corp.     64,186,712    
        Energy — 10.9%  
    15,165,265     BP Plc     129,975,472    
    6,677,400     Chevron Corp.     467,017,356    
    7,166,900     Exxon Mobil Corp.     495,591,135    
    3,084,368     Royal Dutch Shell Group-Class A     85,308,691    
    2,823,060     Total SA     161,986,316    
    Total Energy     1,339,878,970    
        Food & Staples Retailing — 6.7%  
    555,000     Sysco Corp.     14,146,950    
    13,629,000     Wal-Mart Stores, Inc.     693,307,230    
    3,199,000     Walgreen Co.     108,382,120    
    Total Food & Staples Retailing     815,836,300    
        Food, Beverage & Tobacco — 10.8%  
    341,300     Campbell Soup Co.     10,703,168    
    11,922,500     Coca-Cola Co. (The)     581,460,325    
    671,300     General Mills, Inc.     40,096,749    
    443,400     Hershey Co. (The)     17,394,582    
    27,000     HJ Heinz Co.     1,039,500    
    891,800     Kellogg Co.     41,994,862    
    780,600     Kraft Foods, Inc.-Class A     22,130,010    
    2,586,885     Nestle SA     107,699,930    

 

See accompanying notes to the financial statements.


2


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Food, Beverage & Tobacco — continued  
    7,672,100     PepsiCo, Inc.     434,777,907    
    2,474,961     Unilever NV     69,342,834    
    Total Food, Beverage & Tobacco     1,326,639,867    
        Health Care Equipment & Services — 3.0%  
    420,100     Express Scripts, Inc. *      30,339,622    
    4,865,230     Medtronic, Inc.     186,338,309    
    240,000     Quest Diagnostics, Inc.     12,950,400    
    3,672,594     UnitedHealth Group, Inc.     102,832,632    
    659,700     WellPoint, Inc. *      34,865,145    
    Total Health Care Equipment & Services     367,326,108    
        Household & Personal Products — 7.0%  
    1,334,100     Avon Products, Inc.     42,517,767    
    432,700     Clorox Co.     25,568,243    
    2,191,200     Colgate-Palmolive Co.     159,300,240    
    536,600     Estee Lauder Cos. (The), Inc.-Class A     19,237,110    
    1,081,500     Kimberly-Clark Corp.     65,387,490    
    9,985,500     Procter & Gamble Co. (The)     540,315,405    
    Total Household & Personal Products     852,326,255    
        Pharmaceuticals, Biotechnology & Life Sciences — 23.2%  
    5,425,505     Abbott Laboratories     245,395,591    
    3,691,960     Amgen, Inc. *      220,557,690    
    1,350,500     Bristol-Myers Squibb Co.     29,886,565    
    632,400     Gilead Sciences, Inc. *      28,495,944    
    7,512,615     GlaxoSmithKline Plc     146,704,780    
    11,924,100     Johnson & Johnson     720,692,604    
    7,137,100     Merck & Co., Inc.     231,456,153    
    3,074,083     Novartis AG (Registered)     142,800,730    
    37,961,500     Pfizer, Inc.     633,957,050    
    1,010,330     Roche Holding AG     160,920,947    
    1,576,888     Sanofi-Aventis     107,366,562    
    3,715,320     Wyeth     177,778,062    
    Total Pharmaceuticals, Biotechnology & Life Sciences     2,846,012,678    

 

See accompanying notes to the financial statements.


3


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Retailing — 1.1%  
    3,886,200     Home Depot, Inc.     106,054,398    
    1,137,800     Lowe's Cos., Inc.     24,462,700    
    4,900     Target Corp.     230,300    
    Total Retailing     130,747,398    
        Software & Services — 17.0%  
    2,953,273     eBay, Inc. *      65,385,464    
    715,420     Google, Inc.-Class A *      330,287,952    
    573,170     MasterCard, Inc.-Class A     116,141,437    
    29,669,000     Microsoft Corp.     731,340,850    
    31,271,000     Oracle Corp.     683,896,770    
    2,185,200     Visa, Inc.-Class A     155,367,720    
    Total Software & Services     2,082,420,193    
        Technology Hardware & Equipment — 9.6%  
    211,700     Apple, Inc. *      35,610,057    
    21,854,600     Cisco Systems, Inc. *      472,059,360    
    1,643,800     Dell, Inc. *      26,021,354    
    1,022,900     Hewlett-Packard Co.     45,917,981    
    2,393,760     International Business Machines Corp.     282,583,368    
    6,764,900     Qualcomm, Inc.     314,026,658    
    Total Technology Hardware & Equipment     1,176,218,778    
        Telecommunication Services — 2.1%  
    4,594,095     AT&T, Inc.     119,676,175    
    37,244     NTT Docomo Inc     57,341,474    
    2,620,400     Verizon Communications, Inc.     81,337,216    
    Total Telecommunication Services     258,354,865    
        Transportation — 0.0%  
    60,400     United Parcel Service, Inc.-Class B     3,228,984    
    TOTAL COMMON STOCKS (COST $11,493,627,303)     11,566,453,615    

 

See accompanying notes to the financial statements.


4


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 2.6%  
        Money Market Funds — 0.7%  
    88,325,399     State Street Institutional Treasury Money Market Fund-Institutional Class     88,325,399    
        Other Short-Term Investments — 1.9%  
    100,000,000     U.S. Treasury Bill, 0.26%, due 04/08/10 (a)      99,844,900    
    140,000,000     U.S. Treasury Bill, 0.17%, due 01/21/10 (a)      139,908,860    
      239,753,760    
    TOTAL SHORT-TERM INVESTMENTS (COST $327,889,821)     328,079,159    
            TOTAL INVESTMENTS — 96.9%
(Cost $11,821,517,124)		     11,894,532,774    
            Other Assets and Liabilities (net) — 3.1%     376,763,637    
    TOTAL NET ASSETS — 100.0%   $ 12,271,296,411    

 

See accompanying notes to the financial statements.


5


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  3,515     S&P 500 E-Mini Index   September 2009   $ 179,212,275     $ 185,962    

 

As of August 31, 2009, 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.


6



GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $11,821,517,124) (Note 2)   $ 11,894,532,774    
Cash     253,020,979    
Foreign currency, at value (cost $40,376) (Note 2)     40,370    
Receivable for Fund shares sold     123,605,300    
Dividends and interest receivable     38,411,577    
Foreign taxes receivable     564,884    
Receivable for collateral on open futures contracts (Note 2)     15,817,500    
Receivable for expenses reimbursed by Manager (Note 3)     136,152    
Total assets     12,326,129,536    
Liabilities:  
Payable for Fund shares repurchased     41,454,790    
Payable to affiliate for (Note 3):  
Management fee     3,347,820    
Shareholder service fee     873,326    
Trustees and Chief Compliance Officer of GMO Trust fees     20,045    
Payable for variation margin on open futures contracts (Note 2)     761,530    
Payable for collateral on open futures contracts (Note 2)     7,785,000    
Accrued expenses     590,614    
Total liabilities     54,833,125    
Net assets   $ 12,271,296,411    

 

See accompanying notes to the financial statements.


7


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Statement of Assets and Liabilities — August 31, 2009 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 13,582,835,274    
Accumulated undistributed net investment income     46,450,437    
Accumulated net realized loss     (1,431,176,447 )  
Net unrealized appreciation     73,187,147    
    $ 12,271,296,411    
Net assets attributable to:  
Class III shares   $ 3,210,628,500    
Class IV shares   $ 1,129,000,145    
Class V shares   $ 769,904,238    
Class VI shares   $ 7,161,763,528    
Shares outstanding:  
Class III     182,530,321    
Class IV     64,139,534    
Class V     43,768,839    
Class VI     407,072,164    
Net asset value per share:  
Class III   $ 17.59    
Class IV   $ 17.60    
Class V   $ 17.59    
Class VI   $ 17.59    

 

See accompanying notes to the financial statements.


8


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $1,129,396)   $ 144,938,272    
Interest     341,339    
Total investment income     145,279,611    
Expenses:  
Management fee (Note 3)     17,554,068    
Shareholder service fee – Class III (Note 3)     2,000,127    
Shareholder service fee – Class IV (Note 3)     474,835    
Shareholder service fee – Class V (Note 3)     341,518    
Shareholder service fee – Class VI (Note 3)     1,722,593    
Custodian, fund accounting agent and transfer agent fees     526,332    
Legal fees     195,776    
Trustees fees and related expenses (Note 3)     102,197    
Registration fees     31,096    
Audit and tax fees     28,152    
Miscellaneous     76,360    
Total expenses     23,053,054    
Fees and expenses reimbursed by Manager (Note 3)     (810,612 )  
Expense reductions (Note 2)     (13,181 )  
Net expenses     22,229,261    
Net investment income (loss)     123,050,350    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (613,016,505 )  
Closed futures contracts     4,893,547    
Foreign currency, forward contracts and foreign currency related transactions     (482,531 )  
Net realized gain (loss)     (608,605,489 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     2,846,108,798    
Open futures contracts     5,130,457    
Foreign currency, forward contracts and foreign currency related transactions     (14,465 )  
Net unrealized gain (loss)     2,851,224,790    
Net realized and unrealized gain (loss)     2,242,619,301    
Net increase (decrease) in net assets resulting from operations   $ 2,365,669,651    

 

See accompanying notes to the financial statements.


9


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 123,050,350     $ 192,133,660    
Net realized gain (loss)     (608,605,489 )     (801,095,631 )  
Change in net unrealized appreciation (depreciation)     2,851,224,790       (2,483,861,816 )  
Net increase (decrease) in net assets from operations     2,365,669,651       (3,092,823,787 )  
Distributions to shareholders from:  
Net investment income  
Class III     (29,548,689 )     (34,569,204 )  
Class IV     (10,246,076 )     (7,116,929 )  
Class V     (9,289,428 )     (12,924,490 )  
Class VI     (72,553,746 )     (118,045,144 )  
Total distributions from net investment income     (121,637,939 )     (172,655,767 )  
Net realized gains  
Class III     —       (11,560,804 )  
Class IV     —       (2,647,196 )  
Class V     —       (3,886,453 )  
Class VI     —       (33,978,058 )  
Total distributions from net realized gains     —       (52,072,511 )  
      (121,637,939 )     (224,728,278 )  
Net share transactions (Note 7):  
Class III     704,738,002       635,314,415    
Class IV     149,496,434       511,082,914    
Class V     (38,638,854 )     200,968,133    
Class VI     560,189,017       2,284,883,800    
Increase (decrease) in net assets resulting from net share transactions     1,375,784,599       3,632,249,262    
Total increase (decrease) in net assets     3,619,816,311       314,697,197    
Net assets:  
Beginning of period     8,651,480,100       8,336,782,903    
End of period (including accumulated undistributed net investment
income of $46,450,437 and $45,038,026, respectively)		   $ 12,271,296,411     $ 8,651,480,100    

 

See accompanying notes to the financial statements.


10



GMO Quality Fund

(formerly 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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 14.17     $ 20.56     $ 21.78     $ 20.81     $ 20.03     $ 19.93    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.18       0.37       0.39       0.35       0.32       0.39    
Net realized and unrealized
gain (loss)		     3.42       (6.30 )     (0.70 )     1.12       0.72       (0.05 )  
Total from investment
operations		     3.60       (5.93 )     (0.31 )     1.47       1.04       0.34    
Less distributions to shareholders:  
From net investment income     (0.18 )     (0.34 )     (0.36 )     (0.34 )     (0.22 )     (0.24 )  
From net realized gains     —       (0.12 )     (0.55 )     (0.16 )     (0.04 )     —    
Total distributions     (0.18 )     (0.46 )     (0.91 )     (0.50 )     (0.26 )     (0.24 )  
Net asset value, end
of period		   $ 17.59     $ 14.17     $ 20.56     $ 21.78     $ 20.81     $ 20.03    
Total Return(a)      25.57 %**      (29.37 )%     (1.76 )%     7.18 %     5.28 %     1.72 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 3,210,629     $ 1,952,579     $ 2,003,758     $ 1,575,300     $ 1,108,088     $ 463,848    
Net expenses to average
daily net assets		     0.48 %(b)*      0.48 %(b)      0.48 %(b)      0.48 %     0.48 %     0.48 %  
Net investment income to
average daily net assets		     2.26 %*      2.03 %     1.74 %     1.64 %     1.58 %     1.98 %  
Portfolio turnover rate     19 %**      36 %     46 %     50 %     52 %     66 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.02 %*      0.02 %     0.02 %     0.02 %     0.02 %     0.04 %  

 

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

(b)  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 Quality Fund

(formerly 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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 14.19     $ 20.57     $ 21.80     $ 20.82     $ 20.03     $ 19.93    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.19       0.39       0.40       0.37       0.32       0.38    
Net realized and unrealized
gain (loss)		     3.41       (6.30 )     (0.71 )     1.11       0.74       (0.03 )  
Total from investment
operations		     3.60       (5.91 )     (0.31 )     1.48       1.06       0.35    
Less distributions to shareholders:  
From net investment income     (0.19 )     (0.35 )     (0.37 )     (0.34 )     (0.23 )     (0.25 )  
From net realized gains     —       (0.12 )     (0.55 )     (0.16 )     (0.04 )     —    
Total distributions     (0.19 )     (0.47 )     (0.92 )     (0.50 )     (0.27 )     (0.25 )  
Net asset value, end of period   $ 17.60     $ 14.19     $ 20.57     $ 21.80     $ 20.82     $ 20.03    
Total Return(a)      25.49 %**      (29.27 )%     (1.77 )%     7.19 %     5.37 %     1.75 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,129,000     $ 787,276     $ 432,046     $ 800,458     $ 2,005,417     $ 938,586    
Net expenses to average daily
net assets		     0.44 %(b)*      0.44 %(b)      0.44 %(b)      0.44 %     0.44 %     0.44 %  
Net investment income to
average daily net assets		     2.29 %*      2.11 %     1.78 %     1.79 %     1.62 %     1.92 %  
Portfolio turnover rate     19 %**      36 %     46 %     50 %     52 %     66 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.02 %*      0.02 %     0.02 %     0.02 %     0.02 %     0.04 %  

 

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

(b)  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 Quality Fund

(formerly 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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007(a)   
Net asset value, beginning of period   $ 14.17     $ 20.56     $ 21.79     $ 21.91    
Income (loss) from investment operations:  
Net investment income (loss)†      0.19       0.39       0.41       0.07    
Net realized and unrealized gain (loss)     3.42       (6.30 )     (0.72 )     0.04    
Total from investment operations     3.61       (5.91 )     (0.31 )     0.11    
Less distributions to shareholders:  
From net investment income     (0.19 )     (0.36 )     (0.37 )     (0.09 )  
From net realized gains     —       (0.12 )     (0.55 )     (0.14 )  
Total distributions     (0.19 )     (0.48 )     (0.92 )     (0.23 )  
Net asset value, end of period   $ 17.59     $ 14.17     $ 20.56     $ 21.79    
Total Return(b)      25.60 %**      (29.31 )%     (1.75 )%     0.49 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 769,904     $ 637,834     $ 663,616     $ 259,430    
Net expenses to average daily net assets     0.42 %(c)*      0.42 %(c)      0.42 %(c)      0.42 %*   
Net investment income to average daily net assets     2.31 %*      2.11 %     1.83 %     1.40 %*   
Portfolio turnover rate     19 %**      36 %     46 %     50 %††   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.02 %*      0.02 %     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.

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

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


13


GMO Quality Fund

(formerly 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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007(a)   
Net asset value, beginning of period   $ 14.18     $ 20.57     $ 21.79     $ 21.91    
Income (loss) from investment operations:  
Net investment income (loss)†      0.19       0.40       0.41       0.07    
Net realized and unrealized gain (loss)     3.41       (6.31 )     (0.70 )     0.04    
Total from investment operations     3.60       (5.91 )     (0.29 )     0.11    
Less distributions to shareholders:  
From net investment income     (0.19 )     (0.36 )     (0.38 )     (0.09 )  
From net realized gains     —       (0.12 )     (0.55 )     (0.14 )  
Total distributions     (0.19 )     (0.48 )     (0.93 )     (0.23 )  
Net asset value, end of period   $ 17.59     $ 14.18     $ 20.57     $ 21.79    
Total Return(b)      25.53 %**      (29.28 )%     (1.67 )%     0.49 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 7,161,764     $ 5,273,791     $ 5,237,363     $ 2,588,116    
Net expenses to average daily net assets     0.39 %(c)*      0.39 %(c)      0.39 %(c)      0.39 %*   
Net investment income to average daily net assets     2.34 %*      2.16 %     1.84 %     1.43 %*   
Portfolio turnover rate     19 %**      36 %     46 %     50 %††   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.02 %*      0.02 %     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.

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

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


14



GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Quality Fund (formerly GMO U.S. Quality Equity Fund) (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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.

Effective June 1, 2009, the Fund seeks high total return through investment in equities the Manager believes to be high quality. The Fund may make security investments in companies whose stocks are traded in any of the world's securities markets. The Fund may hold fewer than 100 stocks. The Fund does not seek to control risk relative to the S&P 500 Index, MSCI ACWI (All Country World Index) Index, or any other securities market index or benchmark. The Fund reserves the right to make tactical allocations of up to 20% of its net assets to investments in cash and high quality debt investments. The Fund may make investments in emerging countries. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, futures, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

Prior to June 1, 2009, the Fund sought high total return. The Fund sought to achieve its objective by outperforming its benchmark, the S&P 500 Index. The Fund typically made equity investments in companies that issue stocks included in the S&P 500 Index, a U.S. stock index, and in companies with similar market capitalizations. Under normal circumstances, the Fund invested at least 80% of its assets in equity investments tied economically to the U.S.

As of August 31, 2009, the Fund had four classes of shares outstanding: Class III, Class IV, Class V and Class VI. Each class of shares bears a different shareholder service fee.

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.


15


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 9.53% of the net assets of the Fund were valued using fair value prices based on models used by a third party vendor and are classified as using Level 2 inputs in the table below.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

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


16


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Common Stocks  
France   $ —     $ 269,352,878     $ —     $ 269,352,878    
Japan     —       57,341,474       —       57,341,474    
Netherlands     —       69,342,834       —       69,342,834    
Switzerland     —       411,421,607       —       411,421,607    
United Kingdom     —       361,988,943       —       361,988,943    
United States     10,397,005,879       —       —       10,397,005,879    
TOTAL COMMON STOCKS     10,397,005,879       1,169,447,736       —       11,566,453,615    
Short-Term Investments     239,753,760       88,325,399       —       328,079,159    
Total Investments     10,636,759,639       1,257,773,135       —       11,894,532,774    
Derivatives  
Futures     185,962       —       —       185,962    
Total   $ 10,636,945,601     $ 1,257,773,135     $ —     $ 11,894,718,736    

 

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, 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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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.


17


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. 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 various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party


18


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exposure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to


19


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $269,802,905.


20


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of February 28, 2009, 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:

2/28/2017   $ (288,464,155 )  
Total   $ (288,464,155 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 12,173,888,533     $ 237,026,879     $ (516,382,638 )   $ (279,355,759 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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.


21


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time. In addition, while each GMO Fund is exposed to some level of management risk, that risk may be particularly pronounced for this Fund because it does not seek to control risk relative to, or to outperform, a particular securities market index or benchmark.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Market Risk — Value Securities — The Fund purchases some equity securities at prices below what the Manager believes to be their fundamental value. The Fund bears the risk that the price of these securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Focused Investment Risk — Focusing investments in a limited number of companies or in industries with high positive correlations to one another creates additional risk. This risk is particularly pronounced for the Fund, which invests its assets in the securities of a limited number of issuers, and a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund invested in the securities of a larger number of issuers.


22


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty or a borrower of the Fund's securities), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected). The Fund i s a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a


23


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index). The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC


24


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in cases where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


25


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on futures
contracts* 		     —       —       —       185,962       —       185,962    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 185,962     $ —     $ 185,962    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on futures
contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*   The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


26


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       4,893,547       —       4,893,547    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 4,893,547     $ —     $ 4,893,547    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       5,130,457       —       5,130,457    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 5,130,457     $ —     $ 5,130,457    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures  
Average notional amount outstanding   $ 113,416,573    
Highest notional amount outstanding     179,212,275    
Lowest notional amount outstanding     38,150,400    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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


27


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.33% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.33% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.33% of the Fund's average daily net assets.

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, 2009 was $81,313 and $47,104, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $3,159,139,374 and $1,951,725,511, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


28


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 20.01% 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.

As of August 31, 2009, 0.38% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 58.55% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     52,799,675     $ 838,028,016       56,850,636     $ 949,977,379    
Shares issued to shareholders
in reinvestment of distributions		     1,317,559       20,852,384       1,903,117       35,704,632    
Shares repurchased     (9,335,728 )     (154,142,398 )     (18,454,345 )     (350,367,596 )  
Net increase (decrease)     44,781,506     $ 704,738,002       40,299,408     $ 635,314,415    
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     12,310,847     $ 209,423,992       61,336,699     $ 958,117,182    
Shares issued to shareholders
in reinvestment of distributions		     409,206       6,468,950       341,350       6,328,384    
Shares repurchased     (4,079,954 )     (66,396,508 )     (27,177,224 )     (453,362,652 )  
Net increase (decrease)     8,640,099     $ 149,496,434       (34,500,825 )   $ 511,082,914    

 


29


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class V:   Shares   Amount   Shares   Amount  
Shares sold     9,992,349     $ 156,377,740       55,629,177     $ 871,553,660    
Shares issued to shareholders
in reinvestment of distributions		     587,187       9,289,428       839,435       15,553,597    
Shares repurchased     (11,809,597 )     (204,306,022 )     (43,740,533 )     (686,139,124 )  
Net increase (decrease)     (1,230,061 )   $ (38,638,854 )     12,728,079     $ 200,968,133    
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     67,959,237     $ 1,029,537,655       207,622,713     $ 3,716,913,789    
Shares issued to shareholders
in reinvestment of distributions		     4,411,462       69,772,740       7,874,939       146,139,703    
Shares repurchased     (37,300,824 )     (539,121,378 )     (98,156,063 )     (1,578,169,692 )  
Net increase (decrease)     35,069,875     $ 560,189,017       117,341,589     $ 2,284,883,800    

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


30



GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In


31


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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, including the effect of recent market events and chan ges in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 facto rs, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


32


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


33


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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.


34


GMO Quality Fund

(formerly GMO U.S. Quality Equity Fund)
(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2009 (Unaudited)

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

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III      
1) Actual     0.48 %   $ 1,000.00     $ 1,255.70     $ 2.73    
2) Hypothetical     0.48 %   $ 1,000.00     $ 1,022.79     $ 2.45    
Class IV      
1) Actual     0.44 %   $ 1,000.00     $ 1,254.90     $ 2.50    
2) Hypothetical     0.44 %   $ 1,000.00     $ 1,022.99     $ 2.24    
Class V      
1) Actual     0.42 %   $ 1,000.00     $ 1,256.00     $ 2.39    
2) Hypothetical     0.42 %   $ 1,000.00     $ 1,023.09     $ 2.14    
Class VI      
1) Actual     0.39 %   $ 1,000.00     $ 1,255.30     $ 2.22    
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, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


35



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     98.9 %  
Short-Term Investments     2.0    
Forward Currency Contracts     0.0    
Swaps     (0.2 )  
Reverse Repurchase Agreements     (0.6 )  
Other     (0.1 )  
      100.0 %  

 

*  The table above incorporates aggregate indirect asset class exposure associated with investments in GMO Short-Duration Collateral Fund.

Industry Summary**   % of Debt Obligations  
Credit Cards     22.7 %  
Auto Financing     13.3    
Residential Asset-Backed Securities (United States)     12.3    
Insured Auto Financing     7.8    
CMBS     7.4    
Business Loans     6.0    
Residential Mortgage-Backed Securities (European)     6.0    
Student Loans     4.7    
Residential Mortgage-Backed Securities (Australian)     3.6    
Investment Grade Corporate Collateralized Debt Obligations     3.1    
Insured Other     2.8    
Equipment Leases     1.6    
U.S. AIDS     1.3    
Rate Reduction Bonds     1.2    
Bank Loan Collateralized Debt Obligations     1.1    
CMBS Collateralized Debt Obligations     1.0    
Insurance Premiums     0.9    
Insured High Yield Collateralized Debt Obligations     0.7    
U.S. Government & Agencies     0.7    
Insured Time Share     0.5    
Insured Residential Mortgage-Backed Securities (United States)     0.4    
Airlines     0.4    
Insured Transportation     0.1    
Time Share     0.1    
Residential Mortgage-Backed Securities (United States)     0.1    
Insured Residential Asset-Backed Securities (United States)     0.1    
Insured Business Loans     0.1    
Collateralized Loan Obligations     0.0    
ABS Collateralized Debt Obligations     0.0    
      100.0 %  

 

**  The table above incorporates aggregate indirect industry sector exposure associated with investments in GMO Short-Duration Collateral Fund.


1



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
    MUTUAL FUNDS — 98.9%        
    Affiliated Issuers — 98.9%        
  1,879,509     GMO Short-Duration Collateral Fund     30,166,126    
    TOTAL MUTUAL FUNDS (COST $32,811,394)     30,166,126    
    SHORT-TERM INVESTMENTS — 1.2%        
    Money Market Funds — 1.2%        
  375,242     State Street Institutional Treasury Plus Money Market Fund-Institutional Class     375,242    
    TOTAL SHORT-TERM INVESTMENTS (COST $375,242)     375,242    
    TOTAL INVESTMENTS — 100.1%
(Cost $33,186,636)		     30,541,368    
    Other Assets and Liabilities (net) — (0.1%)     (38,191 )  
    TOTAL NET ASSETS — 100.0%   $ 30,503,177    

 

See accompanying notes to the financial statements.


2



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $375,242) (Note 2)   $ 375,242    
Investments in affiliated issuers, at value (cost $32,811,394) (Notes 2 and 8)     30,166,126    
Dividends receivable     9    
Receivable for expenses reimbursed by Manager (Note 3)     2,852    
Total assets     30,544,229    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     1,289    
Shareholder service fee     3,866    
Trustees and Chief Compliance Officer of GMO Trust fees     87    
Accrued expenses     35,810    
Total liabilities     41,052    
Net assets   $ 30,503,177    
Net assets consist of:  
Paid-in capital   $ 37,968,669    
Accumulated undistributed net investment income     39,746    
Accumulated net realized loss     (4,859,970 )  
Net unrealized depreciation     (2,645,268 )  
    $ 30,503,177    
Net assets attributable to:  
Class III shares   $ 30,503,177    
Shares outstanding:  
Class III     1,860,560    
Net asset value per share:  
Class III   $ 16.39    

 

See accompanying notes to the financial statements.


3


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 219,560    
Dividends     131    
Total investment income     219,691    
Expenses:  
Management fee (Note 3)     7,121    
Shareholder service fee – Class III (Note 3)     21,364    
Audit and tax fees     15,640    
Registration fees     1,748    
Custodian, fund accounting agent and transfer agent fees     920    
Legal fees     552    
Trustees fees and related expenses (Note 3)     235    
Miscellaneous     552    
Total expenses     48,132    
Fees and expenses reimbursed by Manager (Note 3)     (19,228 )  
Expense reductions (Note 2)     (5 )  
Net expenses     28,899    
Net investment income (loss)     190,792    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     —    
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     3,999,661    
Net realized and unrealized gain (loss)     3,999,661    
Net increase (decrease) in net assets resulting from operations   $ 4,190,453    

 

See accompanying notes to the financial statements.


4


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 190,792     $ 1,459,448    
Net realized gain (loss)     —       (461,840 )  
Change in net unrealized appreciation (depreciation)     3,999,661       (5,988,117 )  
Net increase (decrease) in net assets from operations     4,190,453       (4,990,509 )  
Distributions to shareholders from:  
Net investment income  
Class III     (151,046 )     (1,520,770 )  
Return of capital  
Class III     (5,033,954 )     (2,186,109 )  
      (5,185,000 )     (3,706,879 )  
Net share transactions (Note 7):  
Class III     4,618,626       24,925,353    
Redemption fees (Notes 2 and 7):  
Class III     1,119       12,814    
Total increase (decrease) in net assets resulting from net share
transactions and redemption fees		     4,619,745       24,938,167    
Total increase (decrease) in net assets     3,625,198       16,240,779    
Net assets:  
Beginning of period     26,877,979       10,637,200    
End of period (including accumulated undistributed net
investment income of $39,746 and $0, respectively)		   $ 30,503,177     $ 26,877,979    

 

See accompanying notes to the financial statements.


5



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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007(a)   
Net asset value, beginning of period   $ 17.08     $ 23.39     $ 25.05     $ 24.82    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.11       1.17       1.07       (0.01 )  
Net realized and unrealized gain (loss)     2.28       (4.92 )     (1.38 )     0.24    
Total from investment operations     2.39       (3.75 )     (0.31 )     0.23    
Less distributions to shareholders:  
From net investment income     (0.09 )     (0.81 )     (1.35 )     —    
Return of capital     (2.99 )     (1.75 )     —       —    
Total distributions     (3.08 )     (2.56 )     (1.35 )     —    
Net asset value, end of period   $ 16.39     $ 17.08     $ 23.39     $ 25.05    
Total Return(c)      15.80 %**      (15.90 )%     (1.33 )%     0.93 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 30,503     $ 26,878     $ 10,637     $ 40,563    
Net expenses to average daily net assets     0.20 %(d)*      0.20 %     0.20 %     0.21 %*   
Net investment income to average daily net assets(b)      1.34 %*      5.47 %     4.25 %     (0.21 )%*   
Portfolio turnover rate     0 %**      18 %     127 %     125 %**††   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.14 %*      0.17 %     0.15 %     0.06 %*   
Redemption fees consisted of the following per
share amounts:† 		   $ 0.00 (e)    $ 0.01       —       —    

 

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

(b)  Net investment income is affected by the timing of the declaration of dividends by GMO Short-Duration Collateral 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 redemption fees which are borne by the shareholder.

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

(e)  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 period from March 1, 2006 (commencement of operations) through February 28, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


6



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Short-Duration Collateral Share Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the J.P. Morgan 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. Its investment objective and principal investment strategies, therefore, are identical to those of SDCF. SDCF invests primarily in U.S. and foreign adjustable rate asset-backed securities and primarily holds asset-backed securities, including, but not limited to, securities backed by pools of residential and commercial mortgages, credit-card receivables, home equity loans, automobile loans, educational loans, corporate and sovereign bonds, and bank loans made to corporations. In addition, SDCF may invest in government securities, corporate debt securities, money market instruments, and commercial paper, and ent er into credit default swaps, reverse repurchase agreements, and repurchase agreements. SDCF also may use exchange-traded and over-the-counter ("OTC") derivatives. Because of the deterioration in credit markets that became acute in 2008, the Fund, through its holdings of SDCF, currently holds and may continue to hold material positions of below investment grade securities.

Since October of 2008, SDCF has declared and paid dividends when it has acquired a meaningful cash position rather than reinvesting that cash in portfolio securities. SDCF continued this practice throughout the period from March 1, 2009 through August 31, 2009.

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). As of August 31, 2009, shares of SDCF were not publicly available for direct purchase.

From prior to March 1, 2009 through July 12, 2009, the Fund had a policy to effect redemptions of its shares in-kind above de minimis levels. The Fund had established de minimis amounts below which redemptions would be honored for cash. Beginning July 13, 2009, the Fund expected to pay redemption requests with cash (less a redemption fee).


7


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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.

As of August 31, 2009, a significant portion of the Fund's dividends received from other GMO funds is expected to be a return of capital for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" reported in the Statement of Operations has been reduced by the portion estimated to be a return of capital as of August 31, 2009. The estimated return of capital is $5,651,030. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the estimated return of capital. Furthermore, the "distributions to shareholders from return of capital" disclosed in the Statement of Changes in Net Assets and Financial Highlights are also estimates as of August 31, 2009. Both the dividends from affiliated issuers and distributions to shareholders from return of capital are subject to change and will not be finalized until February 28, 2010, the Fund's upcoming fiscal year- end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Shares of SDCF are generally valued at their net asset value.

Investments held by SDCF funds are valued as follows. Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally 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 fait h by the Trustees or persons acting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.


8


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Typically SDCF values debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by SDCF, those alternative sources would not necessarily confirm the security price used by the SDCF. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fund. As of August 31, 2009, the t otal value of securities held indirectly for which no alternative pricing source was available represented 19.35% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

Asset Valuation Inputs   Investments
in Securities		   Other Financial
Instruments		  
Level 1 - Quoted Prices   $ —     $ —    
Level 2 - Other Significant Observable Inputs     30,541,368       —    
Level 3 - Significant Unobservable Inputs     —       —    
Total   $ 30,541,368     $ —    
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   $ —     $ —    

 


9


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The underlying fund is classified as Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying fund, please refer to the portfolio valuation notes in SDCF's financial statements. The aggregate net value of the Fund's indirect investments in securities and other financial instruments using Level 3 inputs were 80.43% and (0.24%) of total net assets, respectively.

The Fund held no investments or other financial instruments directly at either February 28, 2009 or August 31, 2009, whose fair value was determined using Level 3 inputs.

The level classification by major category of investments is the same as the category presentation in the 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 carryforwards 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. The Fund is permitted to, and will from time to time, declare and pay distributions from net investment income, if any, more frequently (e.g. monthly). 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.

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


10


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of February 28, 2009, 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   $ (3,400,357 )  
2/28/2017     (862,157 )  
Total   $ (4,262,514 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 33,784,092     $ —     $ (3,242,724 )   $ (3,242,724 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Income dividends and capital gain distributions from the 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 uses the identified cost basis for the purposes of determining the cost basis.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through August 2, 2009, the fee on cash redemptions was 2.00% of the amount redeemed. From August 3, 2009 through August 31, 2009, the fee on cash redemptions was 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired


11


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

(e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are g enerally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Because the Fund invests substantially all of its assets in SDCF, the most significant risks of an investment in the Fund are the risks to which the Fund is exposed through SDCF, which include those outlined in the following brief summary of principal risks. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008.This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Fixed Income Securities — Typically, the value of the SDCF's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and


12


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent SDCF from selling securities or closing derivative positions at desirable prices. SDCF invests in asset-backed securities that may be less liquid than the Fund's or SDCF's benchmark. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular the asset-backed securities held by SDCF.

• Focused Investment Risk — Focusing investments in countries, regions, or sectors with high positive correlations to one another creates additional risk. This risk may be particularly pronounced for SDCF because of its exposure to asset-backed securities secured by different types of consumer debt (e.g., credit-card receivables, automobile loans, and home equity loans).

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of SDCF's securities or the obligor of an obligation underlying an asset-backed security, will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise honor its obligations. The risk of counterparty default is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by SDCF involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by SDCF), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-ter m effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the underlying fund in which the Fund invests will not perform as expected). The Fund and SDCF are non-diversified investment companies under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund or SDCF may affect the Fund's performance more than if the Fund or SDCF were diversified.

The Fund invests (through SDCF) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the


13


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of underlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underl ying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.


14


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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 shareholders 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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.05% of the Fund's average daily net assets. Excluded Fund Fees and 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 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 (including an exchange-traded fund) or would be an inv estment 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, 2009, 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		  
  0.006 %     0.000 %     0.003 %     0.009 %  

 

        

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, 2009 was $235 and $184, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.


15


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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, 2009 aggregated $5,050,000 and $0, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 83.18% 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.

As of August 31, 2009, 85.91% 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 each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     25,505     $ 424,551       1,190,692     $ 27,314,596    
Shares issued to shareholders
in reinvestment of distributions		     267,944       4,295,697       144,906       2,586,630    
Shares repurchased     (6,135 )     (101,622 )     (217,211 )     (4,975,873 )  
Purchase premiums     —       —       —       —    
Redemption fees     —       1,119       —       12,814    
Net increase (decrease)     287,314     $ 4,619,745       1,118,387     $ (24,938,167 )  

 


16


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 26,767,495     $ 5,050,000     $ —     $ 219,560     $ —     $ 30,166,126    
Totals   $ 26,767,495     $ 5,050,000     $ —     $ 219,560     $ —     $ 30,166,126    

 

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. On September 14, 2009, the Fund's redemption fee was eliminated.


17



GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying part icular attention to the possible effects of a decline in the Manager's revenue on such resources. The Trustees also took into account the time and attention devoted by the Manager's senior management to the Fund and SDCF. The Trustees considered the business reputation of the Manager, its financial resources, and its professional liability insurance coverage.

The Trustees also considered the Fund's and SDCF's investment performance relative to their performance benchmark, and as compared to 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, as well as factors identified by the Manager as contributing to the Fund's and SDCF's performance. The Trustees considered information provided by the Manager addressing the Fund's and SDCF's performance, including a performance attribution analysis. The Trustees also considered the qualifications and experience of the personnel r esponsible 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.


18


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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. 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, the Trustees also took into account the sophistication of the investment techniques used to manage SDCF. The Trustees also reviewed information provided by the Manager regarding the combined profits it realized on the services (excluding distribution services) it provided to th e Fund and SDCF, and profits it realized on the services (excluding distribution services) it provided to the Trust, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 co ncluded 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, th e Trustees also considered the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


19


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 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 15, 2009, 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, 2009.


20


GMO Short-Duration Collateral Share Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including 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, 2009 through August 31, 2009.

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     0.21 %   $ 1,000.00     $ 1,158.00     $ 1.14    
2) Hypothetical     0.21 %   $ 1,000.00     $ 1,024.15     $ 1.07    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


21



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Debt Obligations     100.0 %  
Short-Term Investments     0.8    
Reverse Repurchase Agreements     (0.6 )  
Swaps     (0.2 )  
Forward Currency Contracts     0.0    
Other     0.0    
      100.0 %  
Industry Summary   % of Debt Obligations  
Credit Cards     22.7 %  
Auto Financing     12.9    
Residential Asset-Backed Securities (United States)     11.9    
Insured Auto Financing     7.9    
CMBS     7.4    
Residential Mortgage-Backed Securities (European)     6.2    
Business Loans     6.1    
Student Loans     4.7    
Residential Mortgage-Backed Securities (Australian)     3.6    
Investment Grade Corporate Collateralized Debt Obligations     3.2    
Insured Other     2.8    
Equipment Leases     1.6    
U.S. Government Agencies (AID)     1.3    
Rate Reduction Bonds     1.2    
Bank Loan Collateralized Debt Obligations     1.1    
CMBS Collateralized Debt Obligations     1.0    
Insurance Premiums     0.9    
Insured High Yield Collateralized Debt Obligations     0.7    
U.S. Government     0.6    
Insured Time Share     0.5    
Insured Residential Asset-Backed Securities (United States)     0.5    
Insured Residential Mortgage-Backed Securities (United States)     0.4    
Airlines     0.4    
Insured Transportation     0.1    
Time Share     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    
      100.0 %  

 


1



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        DEBT OBLIGATIONS — 100.0%  
        Asset-Backed Securities — 98.1%  
        ABS Collateralized Debt Obligations — 0.0%  
    11,200,000     Paragon CDO Ltd., Series 04-1A, Class A, 144A, 3 mo. LIBOR + .65%, 1.16%,
due 10/20/44		     336,000    
        Airlines — 0.4%  
    19,400,000     Aircraft Finance Trust, Series 99-1A, Class A1, 144A, 1 mo. LIBOR + .48%,
0.75%, due 05/15/24		     5,626,000    
    7,298,971     Continental Airlines, Inc., Series 99-1A, 6.55%, due 08/02/20     7,007,013    
    Total Airlines     12,633,013    
        Auto Financing — 13.3%  
    15,488,014     BMW Vehicle Lease Trust, Series 07-1, Class A3B, 1 mo. LIBOR + .24%,
0.51%, due 08/15/13		     15,479,325    
    11,600,000     Capital Auto Receivable Asset Trust, Series 07-SN1, Class A4,
1 mo. LIBOR + .10%, 0.37%, due 02/15/11		     11,339,000    
    26,700,000     Capital Auto Receivable Asset Trust, Series 07-2, Class A4B,
1 mo. LIBOR + .40%, 0.67%, due 02/18/14		     26,513,100    
    5,100,000     Capital Auto Receivable Asset Trust, Series 08-1, Class A4B,
1 mo. LIBOR + 1.35%, 1.62%, due 07/15/14		     4,867,338    
    24,500,000     Carmax Auto Owner Trust, Series 08-2, Class A4B, 1 mo. LIBOR + 1.65%,
1.92%, due 08/15/13		     24,694,530    
    22,300,000     Daimler Chrysler Auto Trust, Series 08-B, Class A4A, 5.32%, due 11/10/14     23,474,407    
    17,400,000     Daimler Chrysler Auto Trust, Series 08-B, Class A4B, 1 mo. LIBOR + 1.85%,
2.13%, due 11/10/14		     16,747,500    
    3,514,369     Daimler Chrysler Master Owner Trust, Series 06-A, Class A,
1 mo. LIBOR + .03%, 0.30%, due 11/15/11		     3,497,887    
    24,300,000     Ford Credit Auto Owner Trust, Series 06-C, Class A4B, 1 mo. LIBOR + .04%,
0.31%, due 02/15/12		     24,137,919    
    13,700,000     Ford Credit Auto Owner Trust, Series 07-B, Class A4B, 1 mo. LIBOR + .38%,
0.65%, due 07/15/12		     13,528,750    
    31,800,000     Ford Credit Auto Owner Trust, Series 08-B, Class A4B, 1 mo. LIBOR + 2.00%,
2.27%, due 03/15/13		     32,353,638    
    61,000,000     Ford Credit Floorplan Master Owner Trust, Series 06-4, Class A,
1 mo. LIBOR + .25%, 0.52%, due 06/15/13		     56,730,000    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Auto Financing — continued  
    8,400,000     Franklin Auto Trust, Series 08-A, Class A4B, 1 mo. LIBOR + 1.95%, 2.22%,
due 05/20/16		     8,505,000    
    30,200,000     Nissan Auto Lease Trust, Series 08-A, Class A3B, 1 mo. LIBOR + 2.20%,
2.47%, due 07/15/11		     30,030,880    
    31,100,000     Nissan Auto Receivables Owner Trust, Series 07-A, Class A4,
1 mo. LIBOR, 0.27%, due 06/17/13		     30,935,108    
    30,400,000     Nissan Master Owner Trust Receivables, Series 07-A, Class A,
1 mo. LIBOR, 0.27%, due 05/15/12		     29,032,000    
    32,200,000     Swift Master Auto Receivables Trust, Series 07-1, Class A,
1 mo. LIBOR + .10%, 0.37%, due 06/15/12		     29,946,000    
    17,100,000     Swift Master Auto Receivables Trust, Series 07-2, Class A,
1 mo. LIBOR + .65%, 0.92%, due 10/15/12		     15,604,776    
    33,350,000     Truck Retail Installment Paper Corp., Series 05-1A, Class A, 144A,
1 mo. LIBOR + .27%, 0.54%, due 12/15/16		     28,767,743    
    12,000,000     Wachovia Auto Owner Trust, Series 08-A, Class A4B, 1 mo. LIBOR + 1.15%,
1.42%, due 03/20/14		     11,984,520    
    19,600,000     World Omni Auto Receivables Trust, Series 07-A, Class A4, 1 mo. LIBOR,
0.27%, due 11/15/12		     19,305,608    
    Total Auto Financing     457,475,029    
        Bank Loan Collateralized Debt Obligations — 1.1%  
    15,305,407     Arran Corp. Loans No. 1 B.V., Series 06-1A, Class A3, 144A,
3 mo. LIBOR + .17%, 0.78%, due 06/20/25		     14,248,377    
    27,200,000     Omega Capital Europe Plc, Series GLOB-5A, Class A1, 144A,
3 mo. LIBOR + .25%, 0.83%, due 07/05/11		     24,208,000    
    Total Bank Loan Collateralized Debt Obligations     38,456,377    
        Business Loans — 6.0%  
    21,994,137     ACAS Business Loan Trust, Series 07-1A, Class A, 144A,
3 mo. LIBOR + .14%, 0.58%, due 08/16/19		     17,155,427    
    3,359,505     Bayview Commercial Asset Trust, Series 04-1, Class A, 144A,
1 mo. LIBOR + .36%, 0.63%, due 04/25/34		     2,519,629    
    2,516,239     Bayview Commercial Asset Trust, Series 04-3, Class A1, 144A,
1 mo. LIBOR + .37%, 0.64%, due 01/25/35		     1,761,367    
    10,922,107     Bayview Commercial Asset Trust, Series 05-4A, Class A2, 144A,
1 mo. LIBOR + .39%, 0.66%, due 01/25/36		     7,099,369    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Business Loans — continued  
    9,447,665     Bayview Commercial Asset Trust, Series 07-3, Class A1, 144A,
1 mo. LIBOR + .24%, 0.51%, due 07/25/37		     5,668,599    
    31,200,000     Bayview Commercial Asset Trust, Series 07-6A, Class A2, 144A,
1 mo. LIBOR + 1.30%, 1.57%, due 12/25/37		     20,124,000    
    3,324,490     Capitalsource Commercial Loan Trust, Series 06-1A, Class A1, 144A,
1 mo. LIBOR + .12%, 0.39%, due 08/22/16		     2,726,082    
    7,986,489     Capitalsource Commercial Loan Trust, Series 07-1A, Class A, 144A,
1 mo. LIBOR + .13%, 0.40%, due 03/20/17		     6,548,921    
    3,345,867     GE Business Loan Trust, Series 04-1, Class A, 144A, 1 mo. LIBOR + .29%,
0.56%, due 05/15/32		     2,308,648    
    5,864,004     GE Business Loan Trust, Series 05-2A, Class A, 144A, 1 mo. LIBOR + .24%,
0.51%, due 11/15/33		     3,635,683    
    28,300,000     GE Dealer Floorplan Master Trust, Series 06-4, Class A, 1 mo. LIBOR + .01%,
0.28%, due 10/20/11		     28,217,364    
    41,500,000     GE Dealer Floorplan Master Trust, Series 07-2, Class A, 1 mo. LIBOR + .01%,
0.28%, due 07/20/12		     40,860,900    
    8,426,249     Lehman Brothers Small Balance Commercial, Series 05-1A, Class A, 144A,
1 mo. LIBOR + .25%, 0.52%, due 02/25/30		     5,224,274    
    5,282,682     Lehman Brothers Small Balance Commercial, Series 05-2A, Class 1A, 144A,
1 mo. LIBOR + .25%, 0.52%, due 09/25/30		     3,169,609    
    3,834,460     Lehman Brothers Small Balance Commercial, Series 07-3A, Class 1A1, 144A,
1 mo. LIBOR + .65%, 0.92%, due 10/25/37		     3,335,980    
    27,169,000     Lehman Brothers Small Balance Commercial, Series 07-3A, Class 1A2, 144A,
1 mo. LIBOR + .85%, 1.12%, due 10/25/37		     17,116,470    
    27,200,000     Navistar Financial Dealer Note Master Trust, Series 05-1, Class A,
1 mo. LIBOR + .11%, 0.39%, due 02/25/13		     26,384,000    
    20,700,000     Textron Financial Floorplan Master Note, Series 07-AA, Class A, 144A,
1 mo. LIBOR + .06%, 0.33%, due 03/13/12		     13,455,000    
    332,977     The Money Store Business Loan Backed Trust, Series 99-1, Class AN,
1 mo. LIBOR + .50%, 0.77%, due 09/15/17		     283,031    
    Total Business Loans     207,594,353    
        CMBS — 7.4%  
    11,500,000     Banc of America Commercial Mortgage, Inc., Series 06-3, Class A2, 5.81%,
due 07/10/44		     11,528,750    
    4,511,693     Bear Stearns Commercial Mortgage Securities, Inc., Series 05-PW10, Class A1,
5.09%, due 12/11/40		     4,562,224    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        CMBS — continued  
    19,100,000     Citigroup/Deutsche Bank Commercial Mortgage, Series 05-CD1, Class A2FL,
1 mo. LIBOR + .12%, 0.39%, due 07/15/44		     13,370,000    
    32,300,000     Commercial Mortgage Pass-Through Certificates, Series 06-FL12, Class AJ,
144A, 1 mo. LIBOR + .13%, 0.40%, due 12/15/20		     17,765,000    
    25,800,000     GE Capital Commercial Mortgage Corp., Series 05-C4, Class A2, 5.31%,
due 11/10/45		     25,887,720    
    16,950,000     GE Capital Commercial Mortgage Corp., Series 06-C1, Class A2, 5.51%,
due 03/10/44		     17,026,275    
    3,572,545     Greenwich Capital Commercial Funding Corp., Series 06-FL4A, Class A1,
144A, 1 mo. LIBOR + .09%, 0.37%, due 11/05/21		     3,072,388    
    27,200,000     GS Mortgage Securities Corp., Series 06-GG6, Class A2, 5.51%, due 04/10/38     27,123,500    
    5,938,604     GS Mortgage Securities Corp., Series 07-EOP, Class A1, 144A,
1 mo. LIBOR + .09%, 0.37%, due 03/06/20		     5,166,585    
    6,300,000     GS Mortgage Securities Corp., Series 07-EOP, Class A2, 144A,
1 mo. LIBOR + .13%, 0.41%, due 03/06/20		     5,292,000    
    42,900,000     J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-LDP7,
Class A2, 6.05%, due 04/15/45 (a) 		     43,247,662    
    7,637,472     J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-FL1A,
Class A1B, 144A, 1 mo. LIBOR + .12%, 0.39%, due 02/15/20		     5,788,287    
    3,525,454     Lehman Brothers Floating Rate Commercial, Series 06-LLFA, Class A1, 144A,
1 mo. LIBOR + .08%, 0.35%, due 09/15/21		     3,014,264    
    27,000,000     Merrill Lynch Mortgage Trust, Series 06-C1, Class A2, 5.79%, due 05/12/39     27,170,100    
    10,300,000     Morgan Stanley Capital I, Series 06-IQ11, Class A2, 5.69%, due 10/15/42     10,383,636    
    11,000,000     Morgan Stanley Capital I, Series 06-IQ11, Class A3, 5.91%, due 10/15/42     10,723,900    
    4,346,181     Morgan Stanley Dean Witter Capital I, Series 03-TOP9, Class A1, 3.98%,
due 11/13/36		     4,359,220    
    26,097,462     Wachovia Bank Commercial Mortgage Trust, Series 06-WL7A, Class A1,
144A, 1 mo. LIBOR + .09%, 0.36%, due 09/15/21		     18,790,172    
    Total CMBS     254,271,683    
        CMBS Collateralized Debt Obligations — 1.0%  
    4,400,000     American Capital Strategies Ltd. Commercial Real Estate CDO Trust,
Series 07-1A, Class A, 144A, 3 mo. LIBOR + .80%, 1.21%, due 11/23/52		     308,000    
    10,904,754     Crest Exeter Street Solar, Series 04-1A, Class A1, 144A, 3 mo. LIBOR + .35%,
0.95%, due 06/28/19		     6,542,852    
    13,977,288     G-Force LLC, Series 05-RR2, Class A2, 144A, 5.16%, due 12/25/39     6,988,644    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        CMBS Collateralized Debt Obligations — continued  
    18,809,007     Guggenheim Structured Real Estate Funding, Series 05-2A, Class A, 144A,
1 mo. LIBOR + .32%, 0.59%, due 08/26/30		     6,583,153    
    27,100,000     Marathon Real Estate CDO, Series 06-1A, Class A1, 144A,
1 mo. LIBOR + .33%, 0.60%, due 05/25/46		     14,092,000    
    Total CMBS Collateralized Debt Obligations     34,514,649    
        Collateralized Loan Obligations — 0.0%  
    719,907     Archimedes Funding IV (Cayman) Ltd., Series 4A, Class A1, 144A,
3 mo. LIBOR + .48%, 0.87%, due 02/25/13		     647,917    
        Credit Cards — 22.7%  
    9,094,969     Advanta Business Card Master Trust, Series 05-A2, Class A2,
1 mo. LIBOR + .13%, 0.40%, due 05/20/13		     8,640,221    
    13,173,925     Advanta Business Card Master Trust, Series 07-A4, Class A4,
1 mo. LIBOR + .03%, 0.30%, due 04/22/13		     12,515,229    
    50,600,000     American Express Credit Account Master Trust, Series 05-5, Class A,
1 mo. LIBOR + .04%, 0.31%, due 02/15/13		     50,353,072    
    20,700,000     American Express Credit Account Master Trust, Series 06-1, Class A,
1 mo. LIBOR + .03%, 0.30%, due 12/15/13		     20,344,229    
    10,300,000     American Express Issuance Trust, Series 07-1, Class A, 1 mo. LIBOR + .20%,
0.47%, due 09/15/11		     10,253,650    
    4,200,000     Bank of America Credit Card Trust, Series 06-A12, Class A12,
1 mo. LIBOR + .02%, 0.29%, due 03/15/14		     4,098,780    
    33,750,000     Cabela's Master Credit Card Trust, Series 08-4A, Class A2, 144A,
1 mo. LIBOR + 3.00%, 3.27%, due 09/15/14		     34,637,962    
    17,875,000     Capital One Multi-Asset Execution Trust, Series 04-A7, Class A7,
3 mo. LIBOR + .15%, 0.59%, due 06/16/14		     17,523,041    
    24,800,000     Capital One Multi-Asset Execution Trust, Series 06-A14, Class A,
1 mo. LIBOR + .01%, 0.28%, due 08/15/13		     24,428,000    
    7,700,000     Capital One Multi-Asset Execution Trust, Series 07-A4, Class A4,
1 mo. LIBOR + .03%, 0.30%, due 03/16/15		     7,353,500    
    16,800,000     Capital One Multi-Asset Execution Trust, Series 07-A6, Class A6,
1 mo. LIBOR + .07%, 0.34%, due 05/15/13		     16,691,808    
    17,500,000     Capital One Multi-Asset Execution Trust, Series 08-A6, Class A6,
1 mo. LIBOR + 1.10%, 1.37%, due 03/17/14		     17,368,750    
    39,000,000     Charming Shoppes Master Trust, Series 07-1A, Class A1, 144A,
1 mo. LIBOR + 1.25%, 1.52%, due 09/15/17		     36,031,710    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
    46,600,000     Chase Issuance Trust, Series 05-A6, Class A6, 1 mo. LIBOR + .07%, 0.34%,
due 07/15/14		     45,435,000    
    22,900,000     Chase Issuance Trust, Series 06-A7, Class A, 1 mo. LIBOR + .01%, 0.28%,
due 02/15/13		     22,708,900    
    4,000,000     Chase Issuance Trust, Series 07-A1, Class A1, 1 mo. LIBOR + .02%, 0.29%,
due 03/15/13		     3,962,360    
    13,000,000     Chase Issuance Trust, Series 07-A11, Class A11, 1 mo. LIBOR, 0.27%,
due 07/16/12		     12,937,912    
EUR     33,200,000     Citibank Credit Card Issuance Trust, Series 04-A2, Class A,
3 mo. EUR LIBOR + .10%, 0.95%, due 05/24/13		     45,117,674    
    11,200,000     Citibank Credit Card Issuance Trust, Series 01-A7, Class A7,
3 mo. LIBOR + .14%, 0.58%, due 08/15/13		     10,987,200    
    8,100,000     Citibank Credit Card Issuance Trust, Series 05-A3, Class A3,
1 mo. LIBOR + .07%, 0.34%, due 04/24/14		     7,922,853    
    40,500,000     Citibank OMNI Master Trust, Series 07-A9A, Class A9, 144A,
1 mo. LIBOR + 1.10%, 1.37%, due 12/23/13		     40,338,000    
    10,600,000     Discover Card Master Trust I, Series 96-4, Class A, 1 mo. LIBOR + .38%,
0.65%, due 10/16/13		     10,420,860    
    11,000,000     Discover Card Master Trust I, Series 05-4, Class A1, 1 mo. LIBOR + .06%,
0.33%, due 06/18/13		     10,845,340    
    16,400,000     Discover Card Master Trust I, Series 05-4, Class A2, 1 mo. LIBOR + .09%,
0.36%, due 06/16/15		     14,929,125    
    52,700,000     Discover Card Master Trust I, Series 06-2, Class A2, 1 mo. LIBOR + .03%,
0.30%, due 01/16/14		     51,528,901    
    3,900,000     Discover Card Master Trust I, Series 07-1, Class A, 1 mo. LIBOR + .01%,
0.28%, due 08/15/12		     3,882,918    
    46,700,000     First National Master Note Trust, Series 07-2, Class A, 1 mo. LIBOR + .75%,
1.02%, due 11/15/12		     46,648,922    
    19,800,000     GE Capital Credit Card Master Note Trust, Series 05-1, Class A,
1 mo. LIBOR + .04%, 0.31%, due 03/15/13		     19,707,138    
    35,800,000     GE Capital Credit Card Master Note Trust, Series 07-3, Class A1,
1 mo. LIBOR + .01%, 0.28%, due 06/15/13		     35,370,400    
    39,800,000     Household Credit Card Master Note Trust I, Series 07-1, Class A,
1 mo. LIBOR + .05%, 0.32%, due 04/15/13		     39,178,125    
    17,500,000     Household Credit Card Master Note Trust I, Series 07-2, Class A,
1 mo. LIBOR + .55%, 0.82%, due 07/15/13		     17,150,000    
    11,500,000     MBNA Credit Card Master Note Trust, Series 04-A8, Class A8,
1 mo. LIBOR + .15%, 0.42%, due 01/15/14		     11,287,250    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
    40,300,000     National City Credit Card Master Trust, Series 08-3, Class A,
1 mo. LIBOR + 1.80%, 2.07%, due 05/15/13		     39,091,000    
    21,100,000     Pillar Funding Plc, Series 04-2, Class A, 144A, 3 mo. LIBOR + .14%, 0.77%,
due 09/15/11		     21,090,505    
    10,600,000     World Financial Network Credit Card Master Trust, Series 06-A, Class A,
144A, 1 mo. LIBOR + .13%, 0.40%, due 02/15/17		     9,549,964    
    Total Credit Cards     780,330,299    
        Equipment Leases — 1.6%  
    9,791,996     CNH Equipment Trust, Series 07-B, Class A3B, 1 mo. LIBOR + .60%, 0.87%,
due 10/17/11		     9,795,521    
    14,600,000     CNH Equipment Trust, Series 08-A, Class A4B, 1 mo. LIBOR + 1.95%, 2.23%,
due 08/15/14		     14,791,260    
    30,222,736     GE Equipment Midticket LLC, Series 07-1, Class A3B, 1 mo. LIBOR + .25%,
0.52%, due 06/14/11		     30,109,401    
    Total Equipment Leases     54,696,182    
        Insurance Premiums — 0.9%  
    32,700,000     AICCO Premium Finance Master Trust, Series 07-AA, Class A, 144A,
1 mo. LIBOR + .05%, 0.32%, due 12/15/11		     31,411,620    
        Insured Auto Financing — 7.8%  
    8,500,000     Aesop Funding II LLC, Series 05-1A, Class A3, 144A, MBIA,
1 mo. LIBOR + .12%, 0.39%, due 04/20/11		     8,324,560    
    7,090,949     AmeriCredit Automobile Receivables Trust, Series 05-BM, Class A4, MBIA,
1 mo. LIBOR + .08%, 0.36%, due 05/06/12		     7,006,850    
    22,900,000     AmeriCredit Automobile Receivables Trust, Series 07-AX, Class A4, XL,
1 mo. LIBOR + .04%, 0.32%, due 10/06/13		     21,990,870    
    17,000,000     AmeriCredit Automobile Receivables Trust, Series 07-BF, Class A4, FSA,
1 mo. LIBOR + .05%, 0.33%, due 12/06/13		     15,446,200    
    6,556,239     AmeriCredit Automobile Receivables Trust, Series 07-CM, Class A3B, MBIA,
1 mo. LIBOR + .03%, 0.31%, due 05/07/12		     6,398,634    
    13,300,000     AmeriCredit Automobile Receivables Trust, Series 07-DF, Class A4B, FSA,
1 mo. LIBOR + .80%, 1.08%, due 06/06/14		     11,546,249    
    25,400,000     AmeriCredit Prime Automobile Receivable Trust, Series 07-2M, Class A4B,
MBIA, 1 mo. LIBOR + .50%, 0.78%, due 03/08/16		     23,022,255    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Auto Financing — continued  
    20,560,409     Capital One Auto Finance Trust, Series 06-A, Class A4, AMBAC,
1 mo. LIBOR + .01%, 0.28%, due 12/15/12		     19,822,290    
    22,151,306     Capital One Auto Finance Trust, Series 06-B, Class A4, MBIA,
1 mo. LIBOR + .02%, 0.29%, due 07/15/13		     21,536,829    
    6,800,000     Capital One Auto Finance Trust, Series 07-A, Class A4, AMBAC,
1 mo. LIBOR + .02%, 0.29%, due 11/15/13		     6,453,214    
    15,505,215     Capital One Auto Finance Trust, Series 07-C, Class A3B, FGIC,
1 mo. LIBOR + .51%, 0.78%, due 04/16/12		     15,332,176    
    1,600,000     Hertz Vehicle Financing LLC, Series 05-2A, Class A3, 144A, AMBAC,
1 mo. LIBOR + .20%, 0.47%, due 02/25/11		     1,579,152    
    7,800,000     Hertz Vehicle Financing LLC, Series 05-2A, Class A5, 144A, AMBAC,
1 mo. LIBOR + .25%, 0.52%, due 11/25/11		     7,409,376    
    31,821,927     Santander Drive Auto Receivables Trust, Series 07-1, Class A4, FGIC,
1 mo. LIBOR + .05%, 0.32%, due 09/15/14		     29,798,689    
    23,000,000     Santander Drive Auto Receivables Trust, Series 07-3, Class A4B, FGIC,
1 mo. LIBOR + .65%, 0.92%, due 10/15/14		     21,406,100    
    51,300,000     Triad Auto Receivables Owner Trust, Series 07-B, Class A4B, FSA,
1 mo. LIBOR + 1.20%, 1.48%, due 07/14/14		     46,683,000    
    3,630,457     UPFC Auto Receivables Trust, Series 06-B, Class A3, AMBAC, 5.01%,
due 08/15/12		     3,628,751    
    Total Insured Auto Financing     267,385,195    
        Insured Business Loans — 0.1%  
    2,977,589     CNL Commercial Mortgage Loan Trust, Series 03-2A, Class A1, 144A,
AMBAC, 1 mo. LIBOR + .44%, 0.71%, due 10/25/30		     1,935,433    
        Insured High Yield Collateralized Debt Obligations — 0.7%  
    18,892,308     Augusta Funding Ltd., Series 10A, Class F-1, 144A, CapMAC,
3mo. LIBOR +.25%, 0.85%, due 06/30/17 (b) 		     15,805,305    
    4,414,401     GSC Partners CDO Fund Ltd., Series 2A, Class A, 144A, FSA,
6 mo. LIBOR + .52%, 1.76%, due 05/22/13		     3,310,801    
    6,908,818     GSC Partners CDO Fund Ltd., Series 03-4A, Class A3, 144A, AMBAC,
3 mo. LIBOR + .46%, 0.97%, due 12/16/15		     5,803,407    
    Total Insured High Yield Collateralized Debt Obligations     24,919,513    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
      Insured Other — 2.9%  
    24,700,000     DB Master Finance LLC, Series 06-1, Class A2, 144A, AMBAC, 5.78%,
due 06/20/31		     22,830,235    
    45,300,000     Dominos Pizza Master Issuer LLC, Series 07-1, Class A2, 144A, MBIA, 5.26%,
due 04/25/37		     36,368,425    
    12,718,124     Henderson Receivables LLC, Series 06-3A, Class A1, 144A, MBIA,
1 mo. LIBOR + .20%, 0.47%, due 09/15/41		     9,614,011    
    12,202,463     Henderson Receivables LLC, Series 06-4A, Class A1, 144A, MBIA,
1 mo. LIBOR + .20%, 0.47%, due 12/15/41		     9,289,979    
    18,565,617     TIB Card Receivables Fund, 144A, FGIC, 3 mo. LIBOR + .25%, 0.83%,
due 01/05/14		     16,709,055    
    2,988,000     Toll Road Investment Part II, Series B, 144A, MBIA, Zero Coupon,
due 02/15/30		     515,281    
    26,300,000     Toll Road Investment Part II, Series C, 144A, MBIA, Zero Coupon,
due 02/15/37		     2,485,087    
    Total Insured Other     97,812,073    
        Insured Residential Asset-Backed Securities (United States) — 0.4%  
    2,947,743     Ameriquest Mortgage Securities, Inc., Series 04-R6, Class A1, XL,
1 mo. LIBOR + .21%, 0.48%, due 07/25/34		     1,297,007    
    3,505,394     Citigroup Mortgage Loan Trust, Inc., Series 03-HE3, Class A, AMBAC,
1 mo. LIBOR + .38%, 0.65%, due 12/25/33		     1,927,967    
    919,396     Quest Trust, Series 04-X1, Class A, 144A, AMBAC, 1 mo. LIBOR + .33%,
0.60%, due 03/25/34		     505,667    
    24,064,671     Residential Asset Mortgage Products, Inc., Series 05-RS9, Class AI3, FGIC,
1 mo. LIBOR + .22%, 0.49%, due 11/25/35		     10,829,102    
    Total Insured Residential Asset-Backed Securities (United States)     14,559,743    
        Insured Residential Mortgage-Backed Securities (United States) — 0.4%  
    582,672     Chevy Chase Mortgage Funding Corp., Series 03-4A, Class A1, 144A, AMBAC,
1 mo. LIBOR + .34%, 0.61%, due 10/25/34		     302,989    
    1,120,209     Chevy Chase Mortgage Funding Corp., Series 04-1A, Class A2, 144A, AMBAC,
1 mo. LIBOR + .33%, 0.60%, due 01/25/35		     537,700    
    15,444,952     Countrywide Home Equity Loan Trust, Series 07-E, Class A, MBIA,
1 mo. LIBOR + .15%, 0.42%, due 06/15/37		     3,079,723    
    7,655,736     GMAC Mortgage Corp. Loan Trust, Series 04-HE3, Class A3, FSA,
1 mo. LIBOR + .23%, 0.50%, due 10/25/34		     3,524,724    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Residential Mortgage-Backed Securities (United States) — continued  
    520,587     GreenPoint Home Equity Loan Trust, Series 04-1, Class A, AMBAC,
1 mo. LIBOR + .23%, 0.73%, due 07/25/29		     227,486    
    528,540     GreenPoint Home Equity Loan Trust, Series 04-4, Class A, AMBAC,
1 mo. LIBOR + .28%, 0.83%, due 08/15/30		     296,025    
    1,203,978     Lehman ABS Corp., Series 04-2, Class A, AMBAC, 1 mo. LIBOR + .22%,
0.71%, due 06/25/34		     397,313    
    252,446     Residential Funding Mortgage Securities II, Series 03-HS1, Class AII, FGIC,
1 mo. LIBOR + .29%, 0.56%, due 12/25/32		     109,814    
    5,113,131     SBI Heloc Trust, Series 05-HE1, Class 1A, 144A, FSA, 1 mo. LIBOR + .19%,
0.46%, due 11/25/35		     2,446,914    
    2,149,656     Wachovia Asset Securitization, Inc., Series 02-HE1, Class A, AMBAC,
1 mo. LIBOR + .37%, 0.64%, due 09/27/32		     1,100,388    
    1,692,472     Wachovia Asset Securitization, Inc., Series 04-HE1, Class A, MBIA,
1 mo. LIBOR + .22%, 0.49%, due 06/25/34		     814,841    
    Total Insured Residential Mortgage-Backed Securities (United States)     12,837,917    
        Insured Time Share — 0.5%  
    875,665     Cendant Timeshare Receivables Funding LLC, Series 04-1A, Class A2, 144A,
MBIA, 1 mo. LIBOR + .18%, 0.45%, due 05/20/16		     713,821    
    2,387,283     Cendant Timeshare Receivables Funding LLC, Series 05-1A, Class A2, 144A,
FGIC, 1 mo. LIBOR + .18%, 0.45%, due 05/20/17		     2,172,427    
    3,999,894     Sierra Receivables Funding Co., Series 06-1A, Class A2, 144A, MBIA,
1 mo. LIBOR + .15%, 0.42%, due 05/20/18		     3,280,865    
    4,208,445     Sierra Receivables Funding Co., Series 07-1A, Class A2, 144A, FGIC,
1 mo. LIBOR + .15%, 0.42%, due 03/20/19		     3,661,347    
    13,340,900     Sierra Receivables Funding Co., Series 07-2A, Class A2, 144A, MBIA,
1 mo. LIBOR + 1.00%, 1.27%, due 09/20/19		     8,274,293    
    Total Insured Time Share     18,102,753    
        Insured Transportation — 0.1%  
    6,020,000     GE Seaco Finance SRL, Series 04-1A, Class A, 144A, AMBAC,
1 mo. LIBOR + .30%, 0.57%, due 04/17/19		     4,635,400    
        Investment Grade Corporate Collateralized Debt Obligations — 3.1%  
    15,500,000     Counts Trust, Series 04-2, 144A, 3 mo. LIBOR + .95%, 1.56%, due 09/20/09     15,531,465    
    22,300,000     Morgan Stanley ACES SPC, Series 05-15, Class A, 144A, 3 mo. LIBOR + .40%,
1.01%, due 12/20/10		     18,765,450    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Investment Grade Corporate Collateralized Debt Obligations — continued  
    34,200,000     Morgan Stanley ACES SPC, Series 06-13A, Class A, 144A,
3 mo. LIBOR + .29%, 0.90%, due 06/20/13		     18,621,900    
    4,000,000     Morgan Stanley ACES SPC, Series 04-15, Class I, 144A,
3 mo. LIBOR + .45%, 1.06%, due 12/20/09		     3,802,000    
    6,000,000     Morgan Stanley ACES SPC, Series 04-15, Class II, 144A,
3 mo. LIBOR + .65%, 1.26%, due 12/20/09		     5,589,000    
    2,000,000     Morgan Stanley ACES SPC, Series 04-15, Class III, 144A,
3 mo. LIBOR + .75%, 1.36%, due 12/20/09		     1,815,000    
    10,100,000     Morgan Stanley ACES SPC, Series 05-2A, Class A, 144A,
3 mo. LIBOR + .45%, 1.06%, due 03/20/10		     9,180,900    
    12,000,000     Morgan Stanley ACES SPC, Series 05-10, Class A1, 144A,
3 mo. LIBOR + .52%, 1.13%, due 03/20/10		     10,518,000    
    8,400,000     Prism Orso Trust, Series 04-MAPL, Class CERT, 144A, 3 mo. LIBOR + .70%,
1.41%, due 08/01/11		     7,141,680    
    22,900,000     Salisbury International Investments Ltd., 3 mo. LIBOR + .42%, 1.03%,
due 06/22/10		     16,442,200    
    Total Investment Grade Corporate Collateralized Debt Obligations     107,407,595    
        Rate Reduction Bonds — 1.2%  
    14,157,276     Massachusetts RRB Special Purpose Trust, Series 05-1, Class A3, 4.13%,
due 09/15/13		     14,494,785    
    24,500,000     PG&E Energy Recovery Funding LLC, Series 05-1, Class A4, 4.37%,
due 06/25/14		     25,541,250    
    Total Rate Reduction Bonds     40,036,035    
        Residential Asset-Backed Securities (United States) — 12.0%  
    977,554     Accredited Mortgage Loan Trust, Series 04-4, Class A1B,
1 mo. LIBOR + .39%, 0.66%, due 01/25/35		     581,645    
    1,752,333     Accredited Mortgage Loan Trust, Series 07-1, Class A1, 1 mo. LIBOR + .05%,
0.32%, due 02/25/37		     1,662,081    
    2,081,693     ACE Securities Corp., Series 05-ASP1, Class A2C, 1 mo. LIBOR + .27%,
0.54%, due 09/25/35		     2,008,834    
    3,205,526     ACE Securities Corp., Series 06-ASL1, Class A, 1 mo. LIBOR + .14%, 0.41%,
due 02/25/36		     511,281    
    6,442,848     ACE Securities Corp., Series 06-ASP2, Class A2B, 1 mo. LIBOR + .14%,
0.41%, due 03/25/36		     5,927,420    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    8,500,000     ACE Securities Corp., Series 06-ASP2, Class A2C, 1 mo. LIBOR + .18%,
0.45%, due 03/25/36		     3,570,000    
    10,387,413     ACE Securities Corp., Series 06-ASP4, Class A2B, 1 mo. LIBOR + .10%,
0.37%, due 08/25/36		     7,790,560    
    20,300,000     ACE Securities Corp., Series 06-ASP5, Class A2C, 1 mo. LIBOR + .18%,
0.45%, due 10/25/36		     5,278,000    
    18,148,368     ACE Securities Corp., Series 06-CW1, Class A2B, 1 mo. LIBOR + .10%,
0.37%, due 07/25/36		     13,611,276    
    5,900,000     ACE Securities Corp., Series 06-HE2, Class A2C, 1 mo. LIBOR + .16%,
0.43%, due 05/25/36		     1,947,000    
    7,484,403     ACE Securities Corp., Series 06-HE3, Class A2B, 1 mo. LIBOR + .09%,
0.36%, due 06/25/36		     5,613,302    
    11,100,000     ACE Securities Corp., Series 06-OP1, Class A2C, 1 mo. LIBOR + .15%,
0.42%, due 04/25/36		     4,329,000    
    4,321,333     ACE Securities Corp., Series 06-SL1, Class A, 1 mo. LIBOR + .16%, 0.43%,
due 09/25/35		     534,765    
    8,619,824     ACE Securities Corp., Series 06-SL3, Class A1, 1 mo. LIBOR + .10%, 0.37%,
due 06/25/36		     280,144    
    10,019,677     ACE Securities Corp., Series 06-SL3, Class A2, 1 mo. LIBOR + .17%, 0.44%,
due 06/25/36		     175,344    
    10,894,416     ACE Securities Corp., Series 07-HE1, Class A2A, 1 mo. LIBOR + .09%,
0.36%, due 01/25/37		     5,174,848    
    6,496,787     ACE Securities Corp., Series 07-WM1, Class A2A, 1 mo. LIBOR + .07%,
0.34%, due 11/25/36		     3,085,974    
    12,442,814     Alliance Bancorp Trust, Series 07-S1, Class A1, 144A, 1 mo. LIBOR + .20%,
0.47%, due 05/25/37		     1,505,581    
    3,448,275     Argent Securities, Inc., Series 04-W8, Class A5, 1 mo. LIBOR + .52%, 0.79%,
due 05/25/34		     2,580,818    
    58,867,000     Argent Securities, Inc., Series 06-M1, Class A2C, 1 mo. LIBOR + .15%, 0.42%,
due 07/25/36		     13,907,329    
    11,564,217     Argent Securities, Inc., Series 06-M2, Class A2B, 1 mo. LIBOR + .11%, 0.38%,
due 09/25/36		     6,938,530    
    13,350,164     Argent Securities, Inc., Series 06-W2, Class A2B, 1 mo. LIBOR + .19%, 0.46%,
due 03/25/36		     8,277,102    
    642,505     Argent Securities, Inc., Series 06-W4, Class A2B, 1 mo. LIBOR + .11%, 0.38%,
due 05/25/36		     546,129    
    9,600,000     Argent Securities, Inc., Series 06-W5, Class A2C, 1 mo. LIBOR + .15%, 0.42%,
due 06/25/36		     3,187,500    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    14,300,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3B,
1 mo. LIBOR + .11%, 0.38%, due 10/25/36		     13,350,480    
    10,100,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3C,
1 mo. LIBOR + .15%, 0.42%, due 10/25/36		     4,012,730    
    718,523     Asset Backed Funding Certificates, Series 06-OPT3, Class A3A,
1 mo. LIBOR + .06%, 0.33%, due 11/25/36		     696,967    
    28,475,556     Asset Backed Funding Certificates, Series 07-NC1, Class A1, 144A,
1 mo. LIBOR + .22%, 0.49%, due 05/25/37		     20,448,297    
    5,734,455     Bayview Financial Acquisition Trust, Series 04-B, Class A1, 144A,
1 mo. LIBOR + .50%, 1.26%, due 05/28/39		     4,037,056    
    5,978,474     Bayview Financial Acquisition Trust, Series 04-B, Class A2, 144A,
1 mo. LIBOR + .65%, 1.56%, due 05/28/39		     3,587,084    
    11,501,781     Bayview Financial Acquisition Trust, Series 05-A, Class A1, 144A,
1 mo. LIBOR + .50%, 1.26%, due 02/28/40		     5,582,964    
    4,479,622     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A1,
1 mo. LIBOR + .11%, 0.38%, due 11/25/36		     3,129,191    
    8,500,000     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A2,
1 mo. LIBOR + .20%, 0.47%, due 11/25/36		     1,692,256    
    6,015,109     Bear Stearns Mortgage Funding Trust, Series 07-SL2, Class 1A,
1 mo. LIBOR + .16%, 0.43%, due 02/25/37		     549,691    
    9,793,011     Carrington Mortgage Loan Trust, Series 06-NC1, Class A2,
1 mo. LIBOR + .16%, 0.43%, due 01/25/36		     7,834,409    
    4,145,536     Carrington Mortgage Loan Trust, Series 07-FRE1, Class A1,
1 mo. LIBOR + .12%, 0.39%, due 02/25/37		     3,794,190    
    38,100,000     Carrington Mortgage Loan Trust, Series 07-FRE1, Class A2,
1 mo. LIBOR + .20%, 0.47%, due 02/25/37		     23,348,213    
    12,800,000     Centex Home Equity, Series 06-A, Class AV3, 1 mo. LIBOR + .16%, 0.43%,
due 06/25/36		     8,960,000    
    269,942     Chase Funding Mortgage Loan Trust, Series 03-3, Class 2A2,
1 mo. LIBOR + .27%, 0.81%, due 04/25/33		     165,152    
    178,309     Citigroup Mortgage Loan Trust, Inc., Series 04-OPT1, Class A1B,
1 mo. LIBOR + .41%, 0.68%, due 10/25/34		     80,239    
    12,100,000     Citigroup Mortgage Loan Trust, Inc., Series 06-HE3, Class A2C,
1 mo. LIBOR + .16%, 0.43%, due 12/25/36		     3,751,000    
    36,200,000     Countrywide Asset-Backed Certificates, Series 06-BC3, Class 2A2,
1 mo. LIBOR + .14%, 0.41%, due 02/25/37		     19,768,820    
    8,105,398     Countrywide Asset-Backed Certificates, Series 06-BC5, Class 2A1,
1 mo. LIBOR + .08%, 0.35%, due 03/25/37		     7,569,631    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    3,199,381     Credit-Based Asset Servicing & Securitization, Series 06-RP1, Class A1, 144A,
1 mo. LIBOR + .11%, 0.38%, due 04/25/36		     2,950,429    
    429,511     Equity One ABS, Inc., Series 04-1, Class AV2, 1 mo. LIBOR + .30%, 0.57%,
due 04/25/34		     179,992    
    2,013,114     First Franklin Mortgage Loan Asset Backed Certificates, Series 06-FF18,
Class A2A, 1 mo. LIBOR + .07%, 0.34%, due 12/25/37		     1,965,927    
    14,400,000     First Franklin Mortgage Loan Asset Backed Certificates, Series 06-FF5,
Class 2A3, 1 mo. LIBOR + .16%, 0.43%, due 04/25/36		     5,832,000    
    4,556,710     Fremont Home Loan Trust, Series 06-A, Class 1A2, 1 mo. LIBOR + .20%,
0.46%, due 05/25/36		     2,318,226    
    3,343,902     Fremont Home Loan Trust, Series 06-B, Class 2A2, 1 mo. LIBOR + .10%,
0.37%, due 08/25/36		     2,172,492    
    19,925,000     Fremont Home Loan Trust, Series 06-B, Class 2A3, 1 mo. LIBOR + .16%,
0.43%, due 08/25/36		     5,698,550    
    15,000,000     GE-WMC Mortgage Securities, Series 06-1, Class A2B, 1 mo. LIBOR + .15%,
0.42%, due 08/25/36		     4,350,000    
    3,736,045     Household Home Equity Loan Trust, Series 05-2, Class A2,
1 mo. LIBOR + .31%, 0.58%, due 01/20/35		     2,900,105    
    3,218,653     Household Home Equity Loan Trust, Series 05-3, Class A2,
1 mo. LIBOR + .29%, 0.56%, due 01/20/35		     2,450,200    
    11,933,332     Household Home Equity Loan Trust, Series 06-1, Class A1,
1 mo. LIBOR + .16%, 0.43%, due 01/20/36		     9,636,165    
    29,400,000     J.P. Morgan Mortgage Acquisition Corp., Series 06-WMC4, Class A3,
1 mo. LIBOR + .12%, 0.39%, due 12/25/36		     8,422,630    
    4,136,315     Master Asset-Backed Securities Trust, Series 05-FRE1, Class A4,
1 mo. LIBOR + .25%, 0.52%, due 10/25/35		     3,603,765    
    7,176,618     Master Asset-Backed Securities Trust, Series 06-AM3, Class A2,
1 mo. LIBOR + .13%, 0.40%, due 10/25/36		     6,687,746    
    20,910,000     Master Asset-Backed Securities Trust, Series 06-FRE2, Class A4,
1 mo. LIBOR + .15%, 0.42%, due 03/25/36		     7,406,531    
    11,300,000     Master Asset-Backed Securities Trust, Series 06-HE2, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 06/25/36		     3,288,074    
    23,290,000     Master Asset-Backed Securities Trust, Series 06-HE3, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 08/25/36		     7,066,885    
    14,400,000     Master Asset-Backed Securities Trust, Series 06-NC3, Class A4,
1 mo. LIBOR + .16%, 0.43%, due 10/25/36		     4,151,952    
    2,504,312     Master Asset-Backed Securities Trust, Series 06-WMC1, Class A2,
1 mo. LIBOR + .11%, 0.38%, due 02/25/36		     2,487,108    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    6,598,971     Master Second Lien Trust, Series 06-1, Class A, 1 mo. LIBOR + .16%, 0.43%,
due 03/25/36		     214,467    
    10,550,301     Merrill Lynch Mortgage Investors, Series 07-HE2, Class A2A,
1 mo. LIBOR + .12%, 0.39%, due 02/25/37		     5,473,496    
    3,496,461     Morgan Stanley Capital, Inc., Series 04-SD1, Class A, 1 mo. LIBOR + .40%,
0.67%, due 08/25/34		     2,272,700    
    32,500,000     Morgan Stanley Capital, Inc., Series 07-HE4, Class A2C, 1 mo. LIBOR + .23%,
0.50%, due 02/25/37		     9,750,000    
    21,345,837     Morgan Stanley Home Equity Loans, Series 06-3, Class A3,
1 mo. LIBOR + .16%, 0.43%, due 04/25/36		     8,751,793    
    9,020,519     Morgan Stanley Home Equity Loans, Series 07-2, Class A1,
1 mo. LIBOR + .10%, 0.37%, due 04/25/37		     7,045,026    
    9,500,000     Morgan Stanley IXIS Real Estate Capital Trust, Series 06-2, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 11/25/36		     2,565,000    
    2,467,187     Nomura Home Equity Loan, Inc., Series 06-FM1, Class 2A2,
1 mo. LIBOR + .16%, 0.43%, due 11/25/35		     2,427,095    
    8,214,714     People's Choice Home Loan Securities Trust, Series 05-4, Class 1A2,
1 mo. LIBOR + .26%, 0.53%, due 12/25/35		     5,367,634    
    11,025,250     RAAC Series Trust, Series 06-SP1, Class A2, 1 mo. LIBOR + .19%, 0.46%,
due 09/25/45		     8,428,803    
    1,246,352     Residential Asset Mortgage Products, Inc., Series 05-RS4, Class A3,
1 mo. LIBOR + .23%, 0.50%, due 04/25/35		     1,184,034    
    3,275,629     Residential Asset Mortgage Products, Inc., Series 05-RS8, Class A2,
1 mo. LIBOR + .29%, 0.56%, due 10/25/33		     2,808,573    
    720,377     Residential Asset Mortgage Products, Inc., Series 06-RZ4, Class A1,
1 mo. LIBOR + .09%, 0.36%, due 10/25/36		     715,875    
    7,362,151     Residential Asset Securities Corp., Series 05-KS12, Class A2,
1 mo. LIBOR + .25%, 0.52%, due 01/25/36		     6,257,828    
    6,585,926     Residential Asset Securities Corp., Series 07-KS3, Class AI1,
1 mo. LIBOR + .11%, 0.38%, due 04/25/37		     6,029,679    
    236,691     Saxon Asset Securities Trust, Series 04-1, Class A, 1 mo. LIBOR + .27%,
0.81%, due 03/25/35		     110,135    
    4,825,178     Securitized Asset Backed Receivables LLC, Series 06-NC1, Class A2,
1 mo. LIBOR + .16%, 0.43%, due 03/25/36		     3,618,884    
    2,878,007     Security National Mortgage Loan Trust, Series 06-2A, Class A1, 144A,
1 mo. LIBOR + .29%, 0.56%, due 10/25/36		     2,411,770    
    2,189,799     SG Mortgage Securities Trust, Series 05-OPT1, Class A2, 1 mo. LIBOR + .26%,
0.53%, due 10/25/35		     1,983,559    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    2,950,643     Soundview Home Equity Loan Trust, Series 07-NS1, Class A1,
1 mo. LIBOR + .12%, 0.39%, due 01/25/37		     2,420,450    
    17,100,000     Specialty Underwriting & Residential Finance, Series 06-BC3, Class A2C,
1 mo. LIBOR + .15%, 0.42%, due 06/25/37		     4,883,760    
    9,454,097     Structured Asset Investment Loan Trust, Series 06-1, Class A3,
1 mo. LIBOR + .20%, 0.47%, due 01/25/36		     5,483,376    
    6,214,249     Structured Asset Securities Corp., Series 05-S6, Class A2, 1 mo. LIBOR + .29%,
0.56%, due 11/25/35		     1,304,992    
    17,234,438     Yale Mortgage Loan Trust, Series 07-1, Class A, 144A, 1 mo. LIBOR + .40%,
0.67%, due 06/25/37		     4,429,250    
    Total Residential Asset-Backed Securities (United States)     410,889,789    
        Residential Mortgage-Backed Securities (Australian) — 3.6%  
    3,301,224     Australian Mortgage Securities II, Series G3, Class A1A, 3 mo. LIBOR + .21%,
0.74%, due 01/10/35		     2,888,571    
    4,154,224     Crusade Global Trust, Series 04-2, Class A1, 3 mo. LIBOR + .13%, 0.56%,
due 11/19/37		     3,801,423    
    8,841,953     Crusade Global Trust, Series 06-1, Class A1, 144A, 3 mo. LIBOR + .06%,
0.57%, due 07/20/38		     8,247,261    
    14,531,662     Crusade Global Trust, Series 07-1, Class A1, 3 mo. LIBOR + .06%, 0.57%,
due 04/19/38		     13,196,769    
    2,438,000     Interstar Millennium Trust, Series 03-3G, Class A2, 3 mo. LIBOR + .25%,
1.10%, due 09/27/35		     1,935,820    
    25,123,669     Interstar Millennium Trust, Series 04-2G, Class A, 3 mo. LIBOR + .20%,
1.03%, due 03/14/36		     20,270,279    
    1,622,079     Interstar Millennium Trust, Series 05-1G, Class A, 3 mo. LIBOR + .12%,
0.75%, due 12/08/36		     1,332,781    
    2,487,983     Interstar Millennium Trust, Series 06-2GA, Class A2, 144A,
3 mo. LIBOR + .08%, 0.46%, due 05/27/38		     1,870,142    
    1,889,383     Medallion Trust, Series 05-1G, Class A1, 3 mo. LIBOR + .08%, 0.54%,
due 05/10/36		     1,776,387    
    9,575,799     Medallion Trust, Series 06-1G, Class A1, 3 mo. LIBOR + .05%, 0.68%,
due 06/14/37		     8,857,700    
    6,042,271     Medallion Trust, Series 07-1G, Class A1, 3 mo. LIBOR + .04%, 0.42%,
due 02/27/39		     5,599,487    
    13,154,241     National RMBS Trust, Series 06-3, Class A1, 144A, 3 mo. LIBOR + .07%,
0.58%, due 10/20/37		     11,430,115    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (Australian) — continued  
    14,934,160     Puma Finance Ltd., Series G5, Class A1, 144A, 3 mo. LIBOR + .07%, 0.49%,
due 02/21/38		     11,947,328    
    1,469,426     Superannuation Members Home Loans Global Fund, Series 4A, Class A,
3 mo. LIBOR + .22%, 0.98%, due 10/09/29		     1,370,732    
    891,273     Superannuation Members Home Loans Global Fund, Series 6, Class A,
3 mo. LIBOR + .16%, 0.62%, due 11/09/35		     785,363    
    1,761,426     Superannuation Members Home Loans Global Fund, Series 7, Class A1,
3 mo. LIBOR + .14%, 0.77%, due 03/09/36		     1,663,402    
    1,469,965     Superannuation Members Home Loans Global Fund, Series 8, Class A1,
3 mo. LIBOR + .07%, 0.58%, due 01/12/37		     1,266,948    
    17,729,584     Superannuation Members Home Loans Global Fund, Series 07-1, Class A1,
3 mo. LIBOR + .06%, 0.70%, due 06/12/40		     16,092,151    
    12,124,102     Westpac Securitization Trust, Series 07-1G, Class A2A, 3 mo. LIBOR + .05%,
0.47%, due 05/21/38		     10,342,587    
    Total Residential Mortgage-Backed Securities (Australian)     124,675,246    
        Residential Mortgage-Backed Securities (European) — 6.0%  
    11,452,791     Aire Valley Mortgages, Series 06-1A, Class 1A, 144A, 3 mo. LIBOR + .11%,
0.72%, due 09/20/66		     5,726,395    
    15,900,000     Aire Valley Mortgages, Series 07-1A, Class 1A2, 144A, 3 mo. LIBOR + .09%,
0.70%, due 03/20/30		     7,950,000    
    12,300,000     Arkle Master Issuer Plc, Series 06-1A, Class 4A1, 144A, 3 mo. LIBOR + .09%,
0.53%, due 02/17/52		     11,623,500    
    30,800,000     Brunel Residential Mortgages, Series 07-1A, Class A4C, 144A,
3 mo. LIBOR + .10%, 0.61%, due 01/13/39		     27,036,625    
    2,879,521     Gracechurch Mortgage Funding Plc, Series 1A, Class A2B, 144A,
3 mo. LIBOR + .07%, 0.58%, due 10/11/41		     2,717,145    
    6,014,943     Granite Master Issuer Plc, Series 06-2, Class A4, 1 mo. LIBOR + .04%, 0.31%,
due 12/20/54		     4,691,656    
    3,467,031     Granite Mortgages Plc, Series 04-3, Class 2A1, 3 mo. LIBOR + .14%, 0.75%,
due 09/20/44		     2,565,603    
    38,600,000     Holmes Financing Plc, Series 10A, Class 4A1, 144A, 3 mo. LIBOR + .08%,
0.59%, due 07/15/40		     37,564,362    
    10,000,000     Holmes Master Issuer Plc, Series 07-2A, Class 3A1, 3 mo. LIBOR + .08%,
0.59%, due 07/15/21		     9,122,600    
    18,457,682     Kildare Securities Ltd., Series 07-1A, Class A2, 144A, 3 mo. LIBOR + .06%,
0.71%, due 12/10/43		     16,171,698    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (European) — continued  
    767,210     Leek Finance Plc, Series 14A, Class A2B, 144A, 3 mo. LIBOR + .18%, 0.79%,
due 09/21/36		     719,499    
    3,142,900     Leek Finance Plc, Series 15A, Class AB, 144A, 3 mo. LIBOR + .14%, 0.75%,
due 03/21/37		     2,767,225    
    3,891,888     Leek Finance Plc, Series 17A, Class A2B, 144A, 3 mo. LIBOR + .14%, 0.75%,
due 12/21/37		     3,035,065    
    11,300,379     Paragon Mortgages Plc, Series 12A, Class A2C, 144A, 3 mo. LIBOR + .11%,
0.55%, due 11/15/38		     6,342,903    
    6,563,673     Paragon Mortgages Plc, Series 14A, Class A2C, 144A, 3 mo. LIBOR + .10%,
0.73%, due 09/15/39		     3,398,145    
    6,543,175     Paragon Mortgages Plc, Series 7A, Class A1A, 144A, 3 mo. LIBOR + .21%,
0.65%, due 05/15/34		     4,303,053    
    36,000,000     Pendeford Master Issuer Plc, Series 07-1A, Class 3A, 144A,
3 mo. LIBOR + .10%, 0.56%, due 02/12/16		     33,840,000    
    26,600,000     Permanent Master Issuer Plc, Series 06-1, Class 5A, 3 mo. LIBOR + .11%,
0.62%, due 07/15/33		     21,147,000    
    6,400,000     Permanent Master Issuer Plc, Series 07-1, Class 4A, 3 mo. LIBOR + .08%,
0.59%, due 10/15/33		     5,603,584    
    Total Residential Mortgage-Backed Securities (European)     206,326,058    
        Residential Mortgage-Backed Securities (United States) — 0.1%  
    670,174     Chevy Chase Mortgage Funding Corp., Series 04-3A, Class A2, 144A,
1 mo. LIBOR + .30%, 0.57%, due 08/25/35		     321,684    
    1,360,966     GreenPoint Mortgage Funding Trust, Series 05-HE4, Class 2A3C,
1 mo. LIBOR + .25%, 0.52%, due 07/25/30		     1,176,597    
    3,486,595     Mellon Residential Funding Corp., Series 04-TBC1, Class A, 144A,
1 mo. LIBOR + .25%, 0.51%, due 02/26/34		     2,363,802    
    Total Residential Mortgage-Backed Securities (United States)     3,862,083    
        Student Loans — 4.7%  
    10,800,000     College Loan Corp. Trust, Series 06-1, Class A2, 3 mo. LIBOR + .02%, 0.52%,
due 04/25/22		     10,759,500    
    5,032,000     College Loan Corp. Trust, Series 07-1, Class A1, 3 mo. LIBOR + .01%, 0.51%,
due 01/25/23		     5,000,550    
    20,300,000     College Loan Corp. Trust, Series 07-2, Class A1, 3 mo. LIBOR + .25%, 0.75%,
due 01/25/24		     20,230,219    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Student Loans — continued  
    4,122,141     Goal Capital Funding Trust, Series 06-1, Class A1, 3 mo. LIBOR, 0.39%,
due 08/25/20		     4,089,659    
    4,150,489     Goal Capital Funding Trust, Series 07-1, Class A1, 3 mo. LIBOR + .02%,
0.63%, due 06/25/21		     4,082,421    
    446,126     Keycorp Student Loan Trust, Series 05-A, Class 2A1, 3 mo. LIBOR + .05%,
0.65%, due 09/27/21		     444,605    
    2,761,700     Montana Higher Education Student Assistance Corp., Series 05-1, Class A,
3 mo. LIBOR + .04%, 0.65%, due 06/20/15		     2,744,577    
    8,913,016     National Collegiate Student Loan Trust, Series 06-1, Class A2,
1 mo. LIBOR + .14%, 0.41%, due 08/25/23		     8,244,629    
    5,801,086     National Collegiate Student Loan Trust, Series 06-A, Class A1, 144A,
1 mo. LIBOR + .08%, 0.35%, due 08/26/19		     5,641,556    
    9,600,000     Nelnet Student Loan Trust, Series 05-2, Class A4, 3 mo. LIBOR + .08%, 0.69%,
due 12/23/19		     9,368,064    
    15,574,593     SLM Student Loan Trust, Series 05-1, Class A2, 3 mo. LIBOR + .08%, 0.58%,
due 04/27/20		     15,133,505    
    24,600,000     SLM Student Loan Trust, Series 05-3, Class A4, 3 mo. LIBOR + .07%, 0.57%,
due 04/27/20		     24,046,500    
    25,300,000     SLM Student Loan Trust, Series 07-2, Class A2, 3 mo. LIBOR, 0.50%,
due 07/25/17		     24,762,375    
    5,500,000     SLM Student Loan Trust, Series 07-6, Class A2, 3 mo. LIBOR + .25%, 0.75%,
due 01/25/19		     5,390,000    
    12,128,418     SLM Student Loan Trust, Series 07-A, Class A1, 3 mo. LIBOR + .03%, 0.66%,
due 09/15/22		     11,036,861    
    10,800,000     SLM Student Loan Trust, Series 08-6, Class A3, 1 mo. LIBOR + .75%, 1.25%,
due 01/25/19		     10,540,125    
    Total Student Loans     161,515,146    
        Time Share — 0.1%  
    4,377,655     Sierra Receivables Funding Co., Series 08-1A, Class A2, 144A,
1 mo. LIBOR + 4.00%, 4.27%, due 02/20/20		     4,279,157    
    Total Asset-Backed Securities     3,373,546,258    
        U.S. Government — 0.6%  
    22,554,226     U.S. Treasury Inflation Indexed Bond, 0.88%, due 04/15/10 (c) (d)      22,518,996    

 

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, 2009 (Unaudited)

Par Value ($) /
Shares		   Description   Value ($)  
        U.S. Government Agency — 1.3%  
    10,578,750     Agency for International Development Floater (Support of India),
3 mo. LIBOR + .10%, 0.58%, due 02/01/27 (b) 		     8,965,920    
    13,125,000     Agency for International Development Floater (Support of Morocco),
6 mo. LIBOR + .15%, 0.95%, due 10/29/26 (b) 		     11,645,059    
    15,306,250     Agency for International Development Floater (Support of Morocco),
6 mo. LIBOR - .02%, 0.78%, due 02/01/25 (b) 		     13,533,390    
    633,416     Agency for International Development Floater (Support of Peru), Series A,
6 mo. U.S. Treasury Bill + .35%, 0.61%, due 05/01/14 (b) 		     607,039    
    9,870,000     Agency for International Development Floater (Support of Tunisia),
6 mo. LIBOR, 0.80%, due 07/01/23 (b) 		     8,847,038    
    Total U.S. Government Agency     43,598,446    
    TOTAL DEBT OBLIGATIONS (COST $4,253,966,066)     3,439,663,700    
        SHORT-TERM INVESTMENTS — 0.8%  
        Money Market Funds — 0.8%  
    27,428,743     State Street Institutional Treasury Plus Money Market Fund-Institutional Class     27,428,743    
    TOTAL SHORT-TERM INVESTMENTS (COST $27,428,743)     27,428,743    
            TOTAL INVESTMENTS — 100.8%
(Cost $4,281,394,809)		     3,467,092,443    
            Other Assets and Liabilities (net) — (0.8%)     (27,944,855 )  
    TOTAL NET ASSETS — 100.0%   $ 3,439,147,588    

 

See accompanying notes to the financial statements.


21


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Sales #      
  10/06/09       EUR       20,000,000     $ 28,672,908     $ 117,892    

 

#  Fund sells foreign currency; buys USD.

Reverse Repurchase Agreements

Face Value   Description   Market Value  
  USD       20,734,000     JP Morgan Chase Bank, 1.75%, dated 07/09/09, to be repurchased
on demand at face value plus accrued interest.		   $ (20,788,427 )  
    $ (20,788,427 )  

 

Average balance outstanding   $ (20,734,000 )  
Average interest rate     1.77 %  
Maximum balance outstanding   $ (20,734,000 )  
Average shares outstanding     214,212,753    
Average balance per share outstanding   $ (0.10 )  
Days outstanding     54    

 

Average balance outstanding was calculated based on daily balances outstanding during the period that the Fund has entered into reverse repurchase agreements.

See accompanying notes to the financial statements.


22


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  60,000,000     USD   9/20/2010   Morgan Stanley   Receive     0.40 %     4.08 %   Eagle     60,000,000     USD   $ (2,331,599 )  
                    Creek      
 
                    CDO        
  31,000,000     USD   3/20/2013   Morgan Stanley   Receive     0.25 %     6.22 %   MS
Synthetic
2006-1		     31,000,000     USD     (5,939,228 )  
    $ (8,270,827 )  
    Premiums to (Pay) Receive   $ —    

 

^  Receive - Fund receives premium and sells credit protection.
(Pay) - Fund pays premium and buys credit protection.

(1)  Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on the reference security, as of August 31, 2009, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider (i.e. higher) credit spreads represent a deterioration of the referenced entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(2)  The maximum potential amount the Fund could be required to make as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

As of August 31, 2009, for the swap contracts held, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.

See accompanying notes to the financial statements.


23


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Notes to Schedule of Investments:

144A - Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional investors.

AMBAC - Insured as to the payment of principal and interest by AMBAC Assurance Corporation.

CapMAC - Insured as to the payment of principal and interest by Capital Markets Assurance Corporation.

CDO - Collateralized Debt Obligation

CMBS - Commercial Mortgage Backed Security

EUR LIBOR - London Interbank Offered Rate denominated in Euros.

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

XL - Insured as to the payment of principal and interest by XL Capital Assurance.

The rates shown on variable rate notes are the current interest rates at August 31, 2009, which are subject to change based on the terms of the security.

(a)  All or a portion of this security has been pledged to cover collateral requirements on reverse repurchase agreements (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.

(c)  All or a portion of this security has been pledged to cover collateral requirements on open swap contracts (Note 2).

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

Currency Abbreviations:

EUR - Euro

USD - United States Dollar

See accompanying notes to the financial statements.


24



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $4,281,394,809) (Note 2)   $ 3,467,092,443    
Receivable for investments sold     159,871    
Interest receivable     3,665,088    
Unrealized appreciation on open forward currency contracts (Note 2)     117,892    
Receivable for expenses reimbursed by Manager (Note 3)     55,739    
Total assets     3,471,091,033    
Liabilities:  
Payable for investments purchased     1,386    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     7,864    
Payable for open swap contracts (Note 2)     8,270,827    
Payable for reverse repurchase agreements (Note 2)     20,788,427    
Miscellaneous payable     2,537,983    
Accrued expenses     336,958    
Total liabilities     31,943,445    
Net assets   $ 3,439,147,588    
Net assets consist of:  
Paid-in capital   $ 4,377,171,548    
Accumulated undistributed net investment income     3,486,813    
Accumulated net realized loss     (119,055,492 )  
Net unrealized depreciation     (822,455,281 )  
    $ 3,439,147,588    
Net assets   $ 3,439,147,588    
Shares outstanding     214,272,088    
Net asset value per share   $ 16.05    

 

See accompanying notes to the financial statements.


25


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Interest   $ 32,134,668    
Dividends     177,904    
Total investment income     32,312,572    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     213,532    
Legal fees     144,072    
Interest expense (Note 2)     54,427    
Audit and tax fees     40,664    
Trustees fees and related expenses (Note 3)     37,372    
Miscellaneous     17,295    
Total expenses     507,362    
Fees and expenses reimbursed by Manager (Note 3)     (354,568 )  
Expense reductions (Note 2)     (116 )  
Net expenses     152,678    
Net investment income (loss)     32,159,894    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (8,413,160 )  
Closed swap contracts     160,513    
Foreign currency, forward contracts and foreign currency related transactions     (1,321,381 )  
Net realized gain (loss)     (9,574,028 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     479,385,690    
Open swap contracts     21,462,277    
Foreign currency, forward contracts and foreign currency related transactions     (1,996,218 )  
Net unrealized gain (loss)     498,851,749    
Net realized and unrealized gain (loss)     489,277,721    
Net increase (decrease) in net assets resulting from operations   $ 521,437,615    

 

See accompanying notes to the financial statements.


26


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 32,159,894     $ 208,565,178    
Net realized gain (loss)     (9,574,028 )     (331,967,782 )  
Change in net unrealized appreciation (depreciation)     498,851,749       (823,404,562 )  
Net increase (decrease) in net assets from operations     521,437,615       (946,807,166 )  
Distributions to shareholders from:  
Net investment income     (27,899,086 )     (266,488,025 )  
Return of capital     (718,100,918 )     (538,644,733 )  
      (746,000,004 )     (805,132,758 )  
Net share transactions (Note 7):     (13,037,815 )     (2,247,496,453 )  
Redemption fees (Notes 2 and 7):     —       4,769,406    
Total increase (decrease) in net assets resulting from net share
transactions and redemption fees		     (13,037,815 )     (2,242,727,047 )  
Total increase (decrease) in net assets     (237,600,204 )     (3,994,666,971 )  
Net assets:  
Beginning of period     3,676,747,792       7,671,414,763    
End of period (including accumulated undistributed net investment
income of $3,486,813 and distributions in excess of net
investment income of $773,995, respectively)		   $ 3,439,147,588     $ 3,676,747,792    

 

See accompanying notes to the financial statements.


27



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Financial Highlights
(For a share outstanding throughout each period)

    Six Months
Ended
August 31, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 17.10     $ 24.03     $ 25.66     $ 25.60     $ 25.33     $ 25.18    
Income (loss) from
investment operations:		  
Net investment
income (loss)† 		     0.15       0.76       1.38       1.43       1.01       0.59    
Net realized and
unrealized gain (loss)		     2.28       (4.41 )     (1.64 )     0.00 (a)      (0.03 )     (0.09 )  
Total from investment
operations		     2.43       (3.65 )     (0.26 )     1.43       0.98       0.50    
Less distributions to
shareholders:		  
From net investment income     (0.13 )     (1.06 )     (1.37 )     (1.37 )     (0.71 )     (0.34 )  
From net realized gains     —       —       —       —       —       (0.01 )  
From return of capital     (3.35 )     (2.22 )     —       —       —       —    
Total distributions     (3.48 )     (3.28 )     (1.37 )     (1.37 )     (0.71 )     (0.35 )  
Net asset value, end of
period		   $ 16.05     $ 17.10     $ 24.03     $ 25.66     $ 25.60     $ 25.33    
Total Return(b)      16.10 %**      (15.97 )%     (1.14 )%     5.68 %     3.89 %     2.01 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 3,439,148     $ 3,676,748     $ 7,671,415     $ 6,603,600     $ 4,480,312     $ 3,483,889    
Net operating expenses to
average daily net assets		     0.01 %(d)*      0.00 %(c)(d)      0.00 %(c)(d)      0.00 %(c)      0.00 %(c)      0.00 %(c)   
Interest expense to average
daily net assets(e) 		     0.00 %(f)*      —       —       0.01 %     0.02 %     —    
Total net expenses to
average daily net assets		     0.01 %(d)*      0.00 %(d)(g)      0.00 %(d)(g)      0.01 %     0.02 %     0.00 %(g)   
Net investment income to
average daily net assets		     1.82 %*      3.46 %     5.41 %     5.50 %     3.96 %     2.31 %  
Portfolio turnover rate     0.00 %**      16 %     27 %     68 %     45 %     34 %  
Fees and expenses
reimbursed by the
Manager to average
daily net assets:		     0.02 %*      0.02 %     0.01 %     0.02 %     0.02 %     0.02 %  
Redemption fees consisted
of the following per
share amounts:† 		   $ 0.00 (h)    $ 0.02       —       —       —       —    

 

(a)  Net realized and unrealized gain (loss) 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 redemption fees which are borne by the shareholder.

(c)  Net operating expenses were less than 0.01% to average daily net assets.

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

(e)  Interest expense incurred as a result of entering into reverse repurchase agreements is included in the Fund's net expenses. Income earned on investing proceeds from reverse repurchase agreements is included in interest income.

(f)  Interest expense was less than 0.01% to average daily net assets.

(g)  Total net expenses were less than 0.01% to average daily net assets.

(h)  There were no redemption fees during the period.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


28



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Short-Duration Collateral Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the J.P. Morgan U.S. 3 Month Cash Index. The Fund primarily invests in asset-backed securities, including, but not limited to, securities backed by pools of residential and commercial mortgages, credit-card receivables, home equity loans, automobile loans, educational loans, corporate and sovereign bonds, and bank loans made to corporations. In addition, the Fund may invest in government securities, corporate debt securities, money 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. The Fund also may invest in unaffiliated money market funds. Because of the deterioration in credit markets that became acute in 2008, the Fund currently holds and may continue to hold material positions of below investment g rade securities.

Since October of 2008, the Fund has declared and paid dividends when it has acquired a meaningful cash position rather than reinvesting that cash in portfolio securities. The Fund intends to continue this practice.

From prior to March 1, 2009 through July 12, 2009, the Fund had a policy to effect redemptions of its shares in-kind above de minimis levels. The Fund had established de minimis amounts below which redemptions would be honored for cash. Beginning July 13, 2009, the Fund expected to pay redemption requests with cash (less a redemption fee).

As of August 31, 2009, shares of the Fund were not publicly offered and were principally available only to other series of the Trust and certain accredited investors. On July 17, 2009, the Fund filed an initial registration statement to seek to register its shares under the Securities Act of 1933. As of August 31, 2009, the Fund was closed to subscriptions.

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


29


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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.

The "distributions to shareholders from return of capital" disclosed in the Statement of Changes in Net Assets and Financial Highlights are estimates as of August 31, 2009. Distributions to shareholders from return of capital are subject to change and will not be finalized until February 28, 2010, the Fund's upcoming fiscal year-end. In early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

Typically the Fund values debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fund. As of August 31, 200 9, the total value of securities held that were fair valued or for which no alternative pricing source was available represented 19.56% of the net assets of the Fund.


30


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund valued certain debt securities using indicative bids received from primary pricing sources. The Fund also utilizes third party valuation services (which use industry standard models and inputs from pricing vendors) to value credit default swaps.

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Debt Obligations  
Asset-Backed Securities   $ —     $ 620,191,125     $ 2,753,355,133     $ 3,373,546,258    
U.S. Government     —       22,518,996       —       22,518,996    
U.S. Government Agency     —       —       43,598,446       43,598,446    
TOTAL DEBT OBLIGATIONS     —       642,710,121       2,796,953,579       3,439,663,700    
Short-Term Investments     —       27,428,743       —       27,428,743    
TOTAL SHORT-TERM
INVESTMENTS		     —       27,428,743       —       27,428,743    
Total Investments     —       670,138,864       2,796,953,579       3,467,092,443    
Derivatives  
Forward Currency Contracts     —       117,892       —       117,892    
Total   $ —     $ 670,256,756     $ 2,796,953,579     $ 3,467,210,335    

 


31


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical
Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Swap Agreements   $ —     $ —     $ (8,270,827 )   $ (8,270,827 )  
Total   $ —     $ —     $ (8,270,827 )   $ (8,270,827 )  

 

The aggregate net values of the Fund's direct investments in securities and other financial instruments using Level 3 inputs were 81.33% and (0.24%) of total net assets, respectively.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Debt Obligations  
Asset-Backed
Securities		   $ 3,528,379,547     $ (630,674,625 )   $ 2,166,119     $ (7,329,703 )   $ 481,004,920     $ (620,191,125 )   $ 2,753,355,133    
U.S.
Government
Agency		     47,442,969       (1,841,714 )     16,820       (2,308 )     (2,017,321 )     —       43,598,446    
Swaps     (29,733,104 )     (160,514 )     —       160,514       21,462,277       —       (8,270,827 )  
Total   $ 3,546,089,412     $ (632,676,853 )   $ 2,182,939     $ (7,171,497 )   $ 500,449,876     $ (620,191,125 )   $ 2,788,682,752    

 

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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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


32


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. 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. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price


33


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.


34


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price


35


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. As of August 31, 2009, the Fund had entered into reverse repurchase agreements, plus accrued interest, amounting to $20,788,427, selling securities with a market value, plus accrued interest, of $25,328,566. Reverse repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated


36


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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. The Fund is permitted to, and will from time to time, declare and pay distributions from net investment income, if any, more frequently (e.g. monthly). 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital and currency losses of $39,640,884 and $28,599, respectively.


37


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of February 28, 2009, 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 )  
2/28/2017     (32,360,541 )  
Total   $ (69,805,686 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 4,280,000,874     $ 9,662,894     $ (822,571,325 )   $ (812,908,431 )  

 

For the period ended August 31, 2009, the Fund had net realized losses attributed to redemption in-kind transactions of $6,379,072.

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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon


38


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through August 2, 2009, the fee on cash redemptions was 2.00% of the amount redeemed. From August 3, 2009 through August 31, 2009 the fee on cash redemptions was 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relati ng to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value, and you may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of


39


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

current global economic conditions that began to unfold in 2008.This summary is not intended to include every potential risk of investing in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. The Fund invests in asset-backed securities that may be less liquid than the Fund's benchmark. The Fund may be required to sell certain less liquid securities at distressed prices or meet redemption requests in-kind. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular the asset-backed securities held by the Fund.

• Focused Investment Risk — Focusing investments in countries, regions, or sectors with high positive correlations to one another creates additional risk. This risk may be particularly pronounced for the Fund because of its exposure to asset-backed securities secured by different types of consumer debt (e.g., credit-card receivables, automobile loans, and home equity loans).

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security, will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise honor its obligations. The risk of counterparty default is particularly acute in economic environments where financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Market Disruption and Geopolitical Risk (the risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that sh areholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.


40


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund invests in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of underlying assets or other support available to prod uce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underl ying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.


41


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Among other trading agreements, the Fund is party to International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Agreements") with select counterparties that generally govern over-the-counter derivative transactions entered into by the Fund. The ISDA Master Agreements typically include representations and warranties as well as contractual terms related to collateral, events of default, termination events, and other provisions. Termination events include the decline in the net assets of the Fund below a certain level over a specified period of time and entitle a counterparty to elect to terminate early with respect to some or all the transactions under the ISDA Agreement with that counterparty. Such an election by one or more of the counterparties could have a material adverse impact on the Fund's operations. Due to declines in the net assets of the Fund prior to August 31, 2009, one or more counterparties are entitled to terminate early but none has taken such action.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. In particular, the Fund may use swaps (including credit default swaps) or other derivatives on an index, a single security or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through


42


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of


43


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized appreciation on forward
currency contracts		     —       117,892       —       —       —       117,892    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ 117,892     $ —     $ —     $ —     $ 117,892    

 


44


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       (8,270,827 )     —       —       (8,270,827 )  
Total   $ —     $ —     $ (8,270,827 )   $ —     $ —     $ (8,270,827 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       160,513       —       —       160,513    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       (1,334,384 )     —       —       —       (1,334,384 )  
Total   $ —     $ (1,334,384 )   $ 160,513     $ —     $ —     $ (1,173,871 )  

 


45


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       21,462,277       —       —       21,462,277    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       (1,996,281 )     —       —       —       (1,996,281 )  
Total   $ —     $ (1,996,281 )   $ 21,462,277     $ —     $ —     $ 19,465,996    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Swaps  
Average notional amount outstanding   $ 27,393,959     $ 91,000,000    
Highest notional amount outstanding     28,672,908       91,000,000    
Lowest notional amount outstanding     25,353,827       91,000,000    

 

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 expenses incurred by the Fund through at least June 30, 2010 (excluding fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fund) 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, extraor dinary, 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, 2009 was $29,828 and $17,295, respectively. The compensation and expenses of


46


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $1,386 and $614,460,755 respectively. Proceeds from sales of securities for in-kind transactions for the period ended August 31, 2009 were $18,056,963.

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 67.24% 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.

As of August 31, 2009, no shares of the Fund were held by senior management of the Manager and GMO Trust officers and 99.93% of the Fund's shares were held by accounts for which the Manager had investment discretion.


47


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		  
Year Ended
February 28, 2009		  
    Shares   Amount   Shares   Amount  
Shares sold     314,159     $ 5,050,000       89,796,548     $ 2,127,502,850    
Shares issued to shareholders
in reinvestment of distributions		     1,229       19,699       1,977,373       46,978,867    
Shares repurchased     (1,119,821 )     (18,107,514 )     (195,999,454 )     (4,421,978,170 )  
Redemption fees     —       —       —       4,769,406    
Net increase (decrease)     (804,433 )   $ (13,037,815 )     (104,225,533 )   $ (2,242,727,047 )  

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. On September 14, 2009, the Fund's redemption fee was eliminated.


48



GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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


49


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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 15, 2009, 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, 2009.


50


GMO Short-Duration Collateral Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including redemption fees; 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, 2009 through August 31, 2009.

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* 		  
1) Actual     0.01 %   $ 1,000.00     $ 1,161.00     $ 0.05    
2) Hypothetical     0.01 %   $ 1,000.00     $ 1,025.16     $ 0.05    

 

*  Expenses are calculated using the annualized expense ratio (including interest expense) for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


51



GMO Special Situations Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Short-Term Investments     76.5 %  
Debt Obligations     51.3    
Swaps     4.3    
Common Stocks     0.6    
Reverse Repurchase Agreements     (31.8 )  
Other     (0.9 )  
      100.0 %  

 


1



GMO Special Situations Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        COMMON STOCKS — 0.6%  
        China — 0.6%  
    42,000     China Mobile Ltd Sponsored ADR     2,067,240    
    TOTAL COMMON STOCKS (COST $2,239,407)     2,067,240    
        DEBT OBLIGATIONS — 51.3%  
        Foreign Government Obligations — 11.5%  
JPY     778,875,000     Japanese Government CPI Linked Bond, 0.80%, due 12/10/15 (a)      7,688,304    
JPY     785,910,000     Japanese Government CPI Linked Bond, 0.80%, due 03/10/16 (a)      7,685,955    
JPY     782,439,000     Japanese Government CPI Linked Bond, 1.00%, due 06/10/16 (a)      7,706,667    
JPY     1,523,040,000     Japanese Government CPI Linked Bond, 1.10%, due 09/10/16 (a)      15,132,192    
    Total Foreign Government Obligations     38,213,118    
        U.S. Government — 39.8%  
    22,195,680     U.S. Treasury Inflation Indexed Bond, 0.88%, due 04/15/10 (a)      22,161,010    
    100,000,000     U.S. Treasury Principal Strip Bond, due 11/15/22 (b)      56,943,300    
    100,000,000     U.S. Treasury Strip Coupon Bond, due 11/15/23 (b)      53,738,100    
    Total U.S. Government     132,842,410    
    TOTAL DEBT OBLIGATIONS (COST $165,589,416)     171,055,528    
        SHORT-TERM INVESTMENTS — 76.5%  
        Money Market Funds — 6.4%  
    21,484,221     State Street Institutional Treasury Money Market Fund-Institutional Class     21,484,221    
        Other Short-Term Investments — 70.1%  
    234,000,000     U.S. Treasury Bill, 1.01%, due 09/24/09 (c)      233,845,453    
    TOTAL SHORT-TERM INVESTMENTS (COST $255,329,674)     255,329,674    
            TOTAL INVESTMENTS — 128.4%
(Cost $423,158,497)		     428,452,442    
          Other Assets and Liabilities (net) — (28.4%)     (94,718,881 )  
    TOTAL NET ASSETS — 100.0%   $ 333,733,561    

 

See accompanying notes to the financial statements.


2


GMO Special Situations Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Reverse Repurchase Agreements

Face Value   Description   Market Value  
USD 50,715,000     Goldman Sachs, 0.23%, dated 08/13/09, to be repurchased on
demand at face value plus accrued interest.		   $ (50,721,156 )  
USD 55,375,000     Goldman Sachs, 0.26%, dated 08/20/09, to be repurchased on
demand at face value plus accrued interest.		     (55,379,799 )  
    $ (106,100,955 )  

 

Average balance outstanding   $ (85,688,684 )  
Average interest rate     0.25 %  
Maximum balance outstanding   $ (106,090,000 )  
Average shares outstanding     12,512,185    
Average balance per share outstanding   $ (6.85 )  
Days outstanding     19    

 

Average balance outstanding was calculated based on daily balances outstanding during the period that the Fund has entered into reverse repurchase agreements.

Swap Agreements

Forward Starting Dividend Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Fund Pays   Fund Receives   Market
Value		  
  3,910,000     EUR   12/19/2014   BNP Paribas   50,000 EUR for   50,000 EUR for    
   
                    every 1 dividend   every 1 dividend    
   
                    index point decrease   index point increase    
   
                    in the actual   in the actual    
   
                    dividends from the   dividends from the    
   
                    Fixed Strike   Fixed Strike   $ 1,012,515    
  1,862,500     EUR   12/19/2014   Barclays   25,000 EUR for
every 1 dividend
index point decrease
in the actual
dividends from the
Fixed Strike		   25,000 EUR for
every 1 dividend
index point increase
in the actual
dividends from the
Fixed Strike		     620,474    

 

See accompanying notes to the financial statements.


3


GMO Special Situations Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Forward Starting Dividend Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Fund Pays   Fund Receives   Market
Value		  
  3,787,500     EUR   12/19/2014   Barclays   50,000 EUR for   50,000 EUR for    
   
                  every 1 dividend   every 1 dividend    
   
                  index point decrease   index point increase    
   
                  in the actual   in the actual    
   
                  dividends from the   dividends from the    
   
                  Fixed Strike   Fixed Strike   $ 1,163,775    
  1,987,500     EUR   12/18/2015   Barclays   25,000 EUR for
every 1 dividend
index point decrease
in the actual
dividends from the
Fixed Strike		   25,000 EUR for
every 1 dividend
index point increase
in the actual
dividends from the
Fixed Strike		     510,173    
  2,020,000     EUR   12/16/2016   Barclays   25,000 EUR for
every 1 dividend
index point decrease
in the actual
dividends from the
Fixed Strike		   25,000 EUR for
every 1 dividend
index point increase
in the actual
dividends from the
Fixed Strike		     455,148    
  2,072,500     EUR   12/21/2018   Barclays   25,000 EUR for
every 1 dividend
index point decrease
in the actual
dividends from the
Fixed Strike		   25,000 EUR for
every 1 dividend
index point increase
in the actual
dividends from the
Fixed Strike		     456,543    
  2,065,000     EUR   12/21/2018   Barclays   25,000 EUR for
every 1 dividend
index point decrease
in the actual
dividends from the
Fixed Strike		   25,000 EUR for
every 1 dividend
index point increase
in the actual
dividends from the
Fixed Strike		     464,369    
  2,062,500     EUR   12/21/2018   BNP Paribas   25,000 EUR for
every 1 dividend
index point decrease
in the actual
dividends from the
Fixed Strike		   25,000 EUR for
every 1 dividend
index point increase
in the actual
dividends from the
Fixed Strike		     466,978    
    $ 5,149,975    
    Premiums to (Pay) Receive   $ —    

 

See accompanying notes to the financial statements.


4


GMO Special Situations Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)#		   Fixed
Rate		   Variable Rate   Market
Value		  
  100,000,000     USD   11/15/2022   JP Morgan Chase Bank   (Pay)     0.00 %   3 month LIBOR   $ 3,554,025    
  100,000,000     USD   11/15/2023   JP Morgan Chase Bank   (Pay)     0.00 %   3 month LIBOR     4,655,749    
    $ 8,209,774    
    Accretion since inception for zero coupon interest rate swaps   $ 2,240,238    

 

#  Receive - Fund receives fixed rate and pays variable rate.

(Pay) - Fund pays fixed rate and receives variable rate.

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Fund Pays   Fund Receives   Market
Value		  
  32,211,304     USD   8/20/2010   BNP Paribas   MSCI Index (a)    3 month    
   
                    LIBOR - 0.35%   $ 972,965    
                        $ 972,965    
                    Premiums to (Pay) Receive   $ —    

 

As of August 31, 2009, for the swap contracts held, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.

Notes to Schedule of Investments:

ADR - American Depositary Receipt

CPI - Consumer Price Index

LIBOR - London Interbank Offered Rate

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

(b)  All or a portion of this security has been segregated to cover collateral requirements on reverse repurchase agreements (Note 2).

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

See accompanying notes to the financial statements.


5


GMO Special Situations Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Currency Abbreviations:

EUR - Euro

JPY - Japanese Yen

USD - United States Dollar

See accompanying notes to the financial statements.


6



GMO Special Situations Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $423,158,497) (Note 2)   $ 428,452,442    
Foreign currency, at value (cost $195,911) (Note 2)     200,424    
Receivable for Fund shares sold     72,943    
Interest receivable     227,591    
Interest receivable for open swap contracts     640,220    
Receivable for open swap contracts (Note 2)     14,332,714    
Receivable for expenses reimbursed by Manager (Note 3)     9,548    
Total assets     443,935,882    
Liabilities:  
Payable for Fund shares repurchased     3,900,000    
Payable to affiliate for (Note 3):  
Management fee     104,316    
Shareholder service fee     17,356    
Trustees and Chief Compliance Officer of GMO Trust fees     749    
Payable for reverse repurchase agreements (Note 2)     106,100,955    
Accrued expenses     78,945    
Total liabilities     110,202,321    
Net assets   $ 333,733,561    
Net assets attributable to:  
Class III shares   $ 19,663,841    
Class VI shares   $ 314,069,720    
Shares outstanding:  
Class III     730,317    
Class VI     11,639,697    
Net asset value per share:  
Class III   $ 26.93    
Class VI   $ 26.98    

 

See accompanying notes to the financial statements.


7


GMO Special Situations Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Interest   $ 2,505,967    
Dividends     2,796    
Total investment income     2,508,763    
Expenses:  
Management fee (Note 3)     591,438    
Shareholder service fee – Class III (Note 3)     15,090    
Shareholder service fee – Class VI (Note 3)     82,383    
Audit and tax fees     36,984    
Custodian, fund accounting agent and transfer agent fees     20,700    
Interest expense (Note 2)     10,955    
Legal fees     8,740    
Trustees fees and related expenses (Note 3)     3,459    
Miscellaneous     2,760    
Total expenses     772,509    
Fees and expenses reimbursed by Manager (Note 3)     (65,228 )  
Net expenses     707,281    
Net investment income (loss)     1,801,482    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Closed swap contracts     (6,701,794 )  
Written options     338,390    
Net realized gain (loss)     (6,363,404 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     6,353,449    
Open swap contracts     15,215,870    
Written options     564,085    
Foreign currency, forward contracts and foreign currency related transactions     16,477    
Net unrealized gain (loss)     22,149,881    
Net realized and unrealized gain (loss)     15,786,477    
Net increase (decrease) in net assets resulting from operations   $ 17,587,959    

 

See accompanying notes to the financial statements.


8


GMO Special Situations Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,801,482     $ 5,920,536    
Net realized gain (loss)     (6,363,404 )     95,010,697    
Change in net unrealized appreciation (depreciation)     22,149,881       (8,057,488 )  
Net increase (decrease) in net assets from operations     17,587,959       92,873,745    
Net share transactions (Note 7):  
Class III     (1,828,967 )     (77,529,015 )  
Class VI     (28,539,408 )     (350,165,495 )  
Increase (decrease) in net assets resulting from net share
transactions		     (30,368,375 )     (427,694,510 )  
Total increase (decrease) in net assets     (12,780,416 )     (334,820,765 )  
Net assets:  
Beginning of period     346,513,977       681,334,742    
End of period   $ 333,733,561     $ 346,513,977    

 

See accompanying notes to the financial statements.


9



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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008(a)   
Net asset value, beginning of period   $ 25.47     $ 21.32     $ 20.09    
Income (loss) from investment operations:  
Net investment income (loss)†      0.15       0.26       0.31    
Net realized and unrealized gain (loss)     1.31       3.89       0.92    
Total from investment operations     1.46       4.15       1.23    
Net asset value, end of period   $ 26.93     $ 25.47     $ 21.32    
Total Return(b)      5.73 %**      19.47 %     6.12 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 19,664     $ 20,366     $ 88,204    
Net operating expenses to average daily net assets     0.52 %*      0.52 %     0.53 %*   
Interest expense to average daily net assets     0.01 %*      —       —    
Total net expenses to average daily net assets     0.53 %*      0.52 %     0.53 %*   
Net investment income to average daily net assets     1.14 %*      1.20 %     2.71 %*   
Portfolio turnover rate     0 %**      62 %     0 %††**   
Fees and expenses reimbursed by the Manager to average
daily net assets:		     0.04 %*      0.03 %     0.05 %*   

 

(a)  Period from August 13, 2007 (commencement of operations) through February 29, 2008.

(b)  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.


10


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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008(a)   
Net asset value, beginning of period   $ 25.51     $ 21.33     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)†      0.15       0.23       0.34    
Net realized and unrealized gain (loss)     1.32       3.95       0.99    
Total from investment operations     1.47       4.18       1.33    
Net asset value, end of period   $ 26.98     $ 25.51     $ 21.33    
Total Return(b)      5.76 %**      19.60 %     6.65 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 314,070     $ 326,148     $ 593,131    
Net operating expenses to average daily net assets     0.43 %*      0.43 %     0.43 %*   
Interest expense to average daily net assets     0.01 %*      —       —    
Total net expenses to average daily net assets     0.44 %*      0.43 %     0.43 %*   
Net investment income to average daily net assets     1.13 %*      1.03 %     2.84 %*   
Portfolio turnover rate     0 %**      62 %     0 %††**   
Fees and expenses reimbursed by the Manager to average
daily net assets:		     0.04 %*      0.03 %     0.05 %*   

 

(a)  Period from July 31, 2007 (commencement of operations) through February 29, 2008.

(b)  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.


11



GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Special Situations Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 Manager plans to pursue the Fund's 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 addit ion, 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. In pursuing its investment objectives, the Fund is permitted to use a wide variety of exchange-traded and over-the-counter ("OTC") derivatives, including reverse repurchase agreements, options, futures, swap contracts, swaptions and foreign currency derivative transactions. The Fund may elect to make some or all of its investments through one or more wholly-owned, non-U.S. subsidiaries. GMO may serve as the investment manager to these companies but will not receive any additional management or other fees for such services. 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). The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. If the Fund takes temporary defensive positions, it may not achieve its investment objective.

As of August 31, 2009, the Fund had two classes of shares outstanding: Class III and Class VI. Each class of shares bears a different shareholder service fee.

As of August 31, 2009, shares of the Fund were not publicly offered and were principally available only to other series of the Trust and certain accredited investors.

The Fund currently limits subscriptions due to capacity considerations.


12


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

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


13


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Common Stocks  
China   $ 2,067,240     $ —     $ —     $ 2,067,240    
TOTAL COMMON STOCKS     2,067,240       —       —       2,067,240    
Debt Obligations  
Foreign Government Obligations     —       38,213,118       —       38,213,118    
U.S. Government     —       132,842,410       —       132,842,410    
TOTAL DEBT OBLIGATIONS     —       171,055,528       —       171,055,528    
Short-Term Investments     —       255,329,674       —       255,329,674    
Total Investments     2,067,240       426,385,202       —       428,452,442    
Derivatives  
Swap Agreements     —       14,332,714       —       14,332,714    
Total   $ 2,067,240     $ 440,717,916     $ —     $ 442,785,156    

 

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, 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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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.


14


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Forward currency contracts

The Fund may enter into forward currency contracts, including forward cross currency contracts. A forward currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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.


15


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

The Fund may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations.

For the period ended August 31, 2009, investment activity in options contracts written by the Fund was as follows:

    Puts   Calls  
    Principal
Amount
of Contracts		   Number
of Contracts		   Premiums   Principal
Amount
of Contracts		   Number
of Contracts		   Premiums  
Outstanding, beginning
of period		   $ —       (390 )   $ (4,152,460 )   $ —       —     $ —    
Options written     —       —       —       —       —       —    
Options exercised     —       —       —       —       —       —    
Options expired     —       —       —       —       —       —    
Options sold     —       390       4,152,460       —       —       —    
Outstanding, end of
period		   $ —       —     $ —     $ —       —     $ —    

 


16


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, forward starting dividend swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level


17


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to make a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

Forward starting dividend swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive the changes in a dividend index point. The Fund gains exposure by either paying or receiving an amount in respect of an increase or decrease in the change of the relevant dividend index point based on a notional amount. For example, if the Fund took a long position on a dividend index swap, the Fund would receive payments if the relevant index point increased in value and would be obligated to pay if that index point decreased in value.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between


18


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. As of August 31, 2009, the Fund had entered into reverse repurchase agreements, plus accrued interest, amounting to $106,100,955, selling securities with a market value, plus accrued interest, of $110,681,400. Reverse repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants at the end of the period.

Taxes

The Fund has elected to be treated as a partnership for U.S. federal income tax purposes. As a partnership, the Fund is not itself subject to federal income tax. Instead, each shareholder is required to take into account in determining its tax liability its distributive share of items of Fund income, gain, loss, deduction, credit, and tax preference for each taxable year substantially as though such items have been realized directly by the shareholder and without regard to whether any distribution by the Fund has been or will be received. Accordingly, no provision (benefit) for federal and state income taxes is reflected in the accompanying financial statements.

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 423,158,497     $ 5,466,112     $ (172,167 )   $ 5,293,945    

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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


19


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

have any unrecognized tax benefits or liabilities at August 31, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Distributions

Because the Fund has elected to be treated as a partnership for tax purposes, it is not required to make distributions to its shareholders. It is the policy of the Fund to declare and pay distributions as determined by the Trustees (or their delegates).

Security transactions and related investment income

Security transactions are accounted for on the trade date in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value, and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.


20


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

To the extent that the Fund invests in wholly-owned subsidiaries, the Fund is exposed to all the risks to which its wholly-owned subsidiaries are exposed, as well as the risk that investments made through its wholly-owned subsidiaries will not perform as expected.

• Customized Investment Program Risk — Because the Fund is intended to compliment the Manager's asset allocation strategies, the risks associated with the Fund's investments often will be far greater (and investment returns may be far more volatile) than if the Fund served as a stand-alone investment vehicle.

• Management Risk — This is the risk that the Manager's strategies and techniques will fail to produce the desired results.

• Derivatives Risk — The use of derivatives by the Fund or underlying funds involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset. The risk to the Fund of using derivatives is particularly pronounced because the Fund makes substantial use of derivatives to implement its investment program.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Leveraging Risk — The Fund's use of reverse repurchase agreements and other derivatives and securities lending may cause its portfolio to be leveraged. The Fund is not limited in the extent to which it may use derivatives or in the absolute face value of its derivative positions. Leverage increases the Fund's portfolio losses and reduces opportunities for gain when interest rates or currency rates are changing.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. The Fund may be required to sell certain less liquid securities at distressed prices. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular any asset-backed securities held by the Fund.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security, will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise honor its obligations. This risk is particularly pronounced for the Fund because it typically uses OTC derivatives, including swap contracts with longer-term maturities, and may have significant exposure to a single counterparty. The risk of counterparty default is particularly acute in economic environments where financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehma n Brothers and subsequent market disruptions.


21


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Focused Investment Risk — Focusing investments in countries, regions, or sectors with high positive correlations to one another creates additional risk. This risk may be particularly pronounced for the Fund because it makes significant use of swap contracts and other OTC derivative instruments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

Other principal risks of an investment in the Fund include Market Disruption and Geopolitical Risk (the risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Fund and other underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified. For more information about reverse repurchase agreements and other derivatives, please refer to the descriptions of financial instruments (e.g. reverse repurchase agreements, swaps, futures and other types of derivative contracts) in Note 2 above as well as the discussion of the Fund's use of derivatives below.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.


22


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund uses derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund may also use swaps (including credit default swaps) or other derivatives on an index, a single security or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue


23


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.


24


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     8,209,774       —       —       972,965       5,149,975       14,332,714    
Total   $ 8,209,774     $ —     $ —     $ 972,965     $ 5,149,975     $ 14,332,714    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


25


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       —       —       —    
Swap contracts     (6,701,794 )     —       —       —       —       (6,701,794 )  
Written options     —       —       —       338,390       —       338,390    
Forward currency contracts     —       —       —       —       —       —    
Total   $ (6,701,794 )   $ —     $ —     $ 338,390     $ —     $ (6,363,404 )  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       —       —       —    
Swap contracts     10,065,895       —       —       —       5,149,975       15,215,870    
Written options     —       —       —       564,085       —       564,085    
Forward currency contracts     —       —       —       —       —       —    
Total   $ 10,065,895     $ —     $ —     $ 564,085     $ 5,149,975     $ 15,779,955    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Swaps   Options  
Average notional amount outstanding   $ 374,860,605     $ 11,143    
Highest notional amount outstanding     427,790,665       39,000    
Lowest notional amount outstanding     260,474,816       —    

 

3.  Fees and other transactions with affiliates

GMO receives management fee for the services it provides to the Fund. That fee 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.


26


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.37% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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)). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 to the extent that the sum of (i) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses) and (ii) the amount of fees and expenses incurred indirectly by the Fund through its investment in GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.37% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.37% of the Fund's average daily net assets.

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, 2009 was $2,723 and $1,564, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.

4.  Purchases and sales of securities

For the period ended August 31, 2009, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ 108,223,000     $ —    
Investments (non-U.S. Government securities)     2,239,406       —    

 

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss


27


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 83.75% 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.

As of August 31, 2009, 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 each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     363,567     $ 9,667,436       112,442     $ 2,461,097    
Shares issued to shareholders
in reinvestment of distributions		     —       —       —       —    
Shares repurchased     (432,979 )     (11,496,403 )     (3,450,617 )     (79,990,112 )  
Net increase (decrease)     (69,412 )   $ (1,828,967 )     (3,338,175 )   $ (77,529,015 )  
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     821,813     $ 21,677,266       283,402     $ 6,515,930    
Shares issued to shareholders
in reinvestment of distributions		     —       —       —       —    
Shares repurchased     (1,968,099 )     (50,216,674 )     (15,304,605 )     (356,681,425 )  
Net increase (decrease)     (1,146,286 )   $ (28,539,408 )     (15,021,203 )   $ (350,165,495 )  

 


28


GMO Special Situations Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


29



GMO Special Situations Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered that the Fund is intended to complement other strategies offered by the Manager and is not intended to stand on its own, and concluded that the usefulness of the Fund's performance relative to its benchmark was limited because the Fund is not managed to a benchmark. 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.


30


GMO Special Situations Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trust ees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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, th at 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


31


GMO Special Situations Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


32


GMO Special Situations Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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 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
Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.53 %   $ 1,000.00     $ 1,057.30     $ 2.75    
2) Hypothetical     0.53 %   $ 1,000.00     $ 1,022.53     $ 2.70    
Class VI  
1) Actual     0.44 %   $ 1,000.00     $ 1,057.60     $ 2.28    
2) Hypothetical     0.44 %   $ 1,000.00     $ 1,022.99     $ 2.24    

 

*  Expenses are calculated using each Class's annualized expense ratio (including interest expense) for the six months ended August 31, 2009, 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 U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     99.4 %  
Short-Term Investments     0.9    
Futures Contracts     (0.1 )  
Other     (0.2 )  
      100.0 %  
Industry Group Summary   % of Equity Investments  
Retailing     15.1 %  
Insurance     13.7    
Health Care Equipment & Services     8.1    
Software & Services     7.3    
Consumer Services     6.4    
Technology Hardware & Equipment     5.7    
Consumer Durables & Apparel     5.7    
Food, Beverage & Tobacco     5.3    
Commercial & Professional Services     4.7    
Materials     4.7    
Pharmaceuticals, Biotechnology & Life Sciences     3.6    
Capital Goods     3.4    
Real Estate     2.8    
Food & Staples Retailing     2.6    
Diversified Financials     1.9    
Energy     1.8    
Household & Personal Products     1.6    
Telecommunication Services     1.6    
Media     1.0    
Utilities     0.9    
Banks     0.9    
Transportation     0.7    
Automobiles & Components     0.4    
Semiconductors & Semiconductor Equipment     0.1    
      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, 2009 (Unaudited)

Shares   Description   Value ($)  
            COMMON STOCKS — 99.4%          
        Automobiles & Components — 0.4%  
    800     Dorman Products, Inc. *      11,248    
    600     Spartan Motors, Inc.     3,258    
    600     Standard Motor Products, Inc.     7,428    
    2,200     TRW Automotive Holdings Corp. *      38,830    
    Total Automobiles & Components     60,764    
        Banks — 0.9%  
    200     Bank of Kentucky Financial Corp.     5,382    
    200     Camden National Corp.     6,470    
    400     First Defiance Financial Corp.     6,656    
    300     First of Long Island Corp. (The)     8,562    
    500     Great Southern Bancorp, Inc.     10,525    
    400     National Bankshares, Inc.     10,164    
    2,300     Ocwen Financial Corp. *      23,805    
    2,700     PMI Group (The), Inc.     9,018    
    3,300     Radian Group, Inc.     30,261    
    1,300     Trustmark Corp.     24,739    
    Total Banks     135,582    
        Capital Goods — 3.3%  
    500     AAON, Inc.     10,440    
    900     Alliant Techsystems, Inc. *      69,552    
    1,100     Applied Industrial Technologies, Inc.     22,693    
    900     Beacon Roofing Supply, Inc. *      15,138    
    1,300     Briggs & Stratton Corp.     22,932    
    1,300     Carlisle Cos., Inc.     42,887    
    1,200     Crane Co.     28,164    
    131     DigitalGlobe, Inc. *      2,628    
    1,500     Force Protection, Inc. *      7,950    
    800     H&E Equipment Services, Inc. *      8,016    
    1,600     Hubbell, Inc.-Class B     61,552    
    800     Interline Brands, Inc. *      13,368    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Capital Goods — continued  
    1,000     John Bean Technologies Corp.     16,690    
    200     Michael Baker Corp. *      6,696    
    2,500     Oshkosh Corp.     84,000    
    1,000     Thomas & Betts Corp. *      27,690    
    800     Toro Co. (The)     30,344    
    600     Universal Forest Products, Inc.     24,780    
    1,400     WESCO International, Inc. *      33,642    
    Total Capital Goods     529,162    
        Commercial & Professional Services — 4.7%  
    1,000     Administaff, Inc.     24,140    
    5,400     Cintas Corp.     148,176    
    400     Courier Corp.     6,440    
    2,400     Deluxe Corp.     40,104    
    900     Ennis, Inc.     12,267    
    3,400     Equifax, Inc.     93,976    
    1,500     HNI Corp.     32,220    
    400     ICF International, Inc. *      10,940    
    1,000     Kelly Services, Inc.-Class A     11,480    
    2,000     Kforce, Inc. *      22,400    
    2,800     Manpower, Inc.     144,760    
    3,900     Robert Half International, Inc.     102,531    
    600     School Specialty, Inc. *      13,674    
    1,600     Spherion Corp. *      8,672    
    1,200     TrueBlue, Inc. *      16,320    
    1,000     United Stationers, Inc. *      45,690    
    400     Volt Information Sciences, Inc. *      4,040    
    Total Commercial & Professional Services     737,830    
        Consumer Durables & Apparel — 5.7%  
    1,300     American Greetings Corp.-Class A     18,057    
    200     Blyth, Inc.     9,100    
    2,400     Brunswick Corp.     22,296    
    2,500     Carter's, Inc. *      62,900    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Consumer Durables & Apparel — continued  
    1,100     Columbia Sportswear Co.     43,241    
    2,100     CROCS, Inc. *      13,335    
    300     CSS Industries, Inc.     6,264    
    2,000     Fossil, Inc. *      50,760    
    700     Helen of Troy Ltd. *      15,134    
    3,500     Jarden Corp. *      85,225    
    2,800     Jones Apparel Group, Inc.     43,652    
    500     Maidenform Brands, Inc. *      8,070    
    5,100     Newell Rubbermaid, Inc.     70,992    
    400     Oxford Industries, Inc.     5,600    
    1,500     Phillips-Van Heusen Corp.     56,670    
    1,000     Polaris Industries, Inc.     37,710    
    1,100     Pool Corp.     26,202    
    400     RC2 Corp. *      6,280    
    3,100     Standard Pacific Corp. *      11,253    
    2,500     Stanley Works (The)     102,325    
    800     Steven Madden Ltd. *      25,784    
    3,300     Tempur-Pedic International, Inc. *      48,840    
    2,700     Timberland Co.-Class A *      34,992    
    1,700     Tupperware Corp.     62,883    
    1,300     Wolverine World Wide, Inc.     32,383    
    Total Consumer Durables & Apparel     899,948    
        Consumer Services — 6.4%  
    500     Ambassadors Group, Inc.     7,890    
    1,300     Ameristar Casinos, Inc.     21,593    
    900     Bob Evans Farms, Inc.     24,183    
    2,200     Boyd Gaming Corp. *      22,616    
    4,300     Brinker International, Inc.     62,608    
    400     California Pizza Kitchen, Inc. *      5,624    
    4,500     Career Education Corp. *      106,875    
    1,000     Carrols Restaurant Group, Inc. *      7,610    
    800     CEC Entertainment, Inc. *      21,400    
    1,300     Cheesecake Factory (The), Inc. *      23,881    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Consumer Services — continued  
    300     CPI Corp.     5,424    
    1,100     Cracker Barrel Old Country Store, Inc.     31,251    
    4,400     Darden Restaurants, Inc.     144,892    
    500     DineEquity, Inc.     10,540    
    2,200     Domino's Pizza, Inc. *      17,798    
    200     Frisch's Restaurants, Inc.     5,644    
    1,400     Isle of Capri Casinos, Inc. *      14,322    
    1,170     ITT Educational Services, Inc. *      122,838    
    1,000     Jack in the Box, Inc. *      20,390    
    500     Lincoln Educational Services Corp. *      11,090    
    400     Mac-Gray Corp. *      4,796    
    900     O'Charleys, Inc.     6,885    
    1,000     Papa John's International, Inc. *      23,330    
    500     PF Chang's China Bistro, Inc. *      15,955    
    500     Pre-Paid Legal Services, Inc. *      22,920    
    2,400     Regis Corp.     38,832    
    3,200     Ruby Tuesday, Inc. *      23,360    
    1,100     Shuffle Master, Inc. *      8,338    
    1,000     Speedway Motorsports, Inc.     15,550    
    1,000     Steak n Shake Co. (The) *      10,480    
    700     Steiner Leisure Ltd. *      23,254    
    1,400     Weight Watchers International, Inc.     38,402    
    6,200     Wyndham Worldwide Corp.     93,930    
    Total Consumer Services     1,014,501    
        Diversified Financials — 1.9%  
    2,700     Advance America Cash Advance Centers, Inc.     15,498    
    5,700     AmeriCredit Corp. *      98,382    
    500     Calamos Asset Management, Inc.     5,640    
    500     Encore Capital Group, Inc. *      7,450    
    2,000     Federated Investors Inc.-Class B     52,500    
    700     Hercules Technology Growth Capital, Inc.     6,489    
    2,700     MCG Capital Corp. *      8,181    
    2,200     MF Global Ltd. *      15,730    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Diversified Financials — continued  
    2,400     Nelnet, Inc.-Class A *      35,424    
    800     PennantPark Investment Corp.     6,680    
    1,900     Primus Guaranty Ltd. *      7,885    
    650     Student Loan Corp.     31,954    
    600     World Acceptance Corp. *      15,618    
    Total Diversified Financials     307,431    
        Energy — 1.8%  
    1,100     Delek US Holdings, Inc.     8,899    
    4,200     Sunoco, Inc.     112,980    
    5,300     Tesoro Corp.     74,624    
    4,300     Western Refining, Inc. *      26,101    
    1,500     World Fuel Services Corp.     67,410    
    Total Energy     290,014    
        Food & Staples Retailing — 2.5%  
    1,500     BJ's Wholesale Club, Inc. *      48,900    
    1,500     Casey's General Stores, Inc.     41,625    
    400     Nash Finch Co.     10,856    
    1,200     Pantry, Inc. *      18,180    
    7,000     Supervalu, Inc.     100,450    
    500     Susser Holdings Corp. *      5,365    
    900     United Natural Foods, Inc. *      24,318    
    700     Village Super Market, Inc.     20,055    
    1,200     Weis Markets, Inc.     37,452    
    3,300     Whole Foods Market, Inc. *      95,964    
    Total Food & Staples Retailing     403,165    
        Food, Beverage & Tobacco — 5.2%  
    3,200     Alliance One International, Inc. *      12,256    
    500     Coca-Cola Bottling Co.     27,030    
    6,500     Dean Foods Co. *      117,910    
    8,700     Del Monte Foods Co.     91,263    
    3,900     Hormel Foods Corp.     144,105    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Food, Beverage & Tobacco — continued  
    500     J&J Snack Foods Corp.     21,850    
    2,800     JM Smucker Co. (The)     146,356    
    900     Lancaster Colony Corp.     45,234    
    2,200     National Beverage Corp. *      22,308    
    4,200     PepsiAmericas, Inc.     117,516    
    1,500     Pilgrim's Pride Corp.     7,200    
    1,100     Ralcorp Holdings, Inc. *      69,003    
    300     Seneca Foods Corp.-Class A *      8,004    
    Total Food, Beverage & Tobacco     830,035    
        Health Care Equipment & Services — 8.0%  
    500     America Service Group, Inc.     9,120    
    2,300     AMERIGROUP Corp. *      54,395    
    1,300     BioScrip, Inc. *      7,644    
    500     Cantel Medical Corp. *      6,720    
    1,900     Centene Corp. *      32,889    
    1,500     Cerner Corp. *      92,565    
    900     Chemed Corp.     39,186    
    500     Computer Programs & Systems, Inc.     19,350    
    1,900     Continucare Corp. *      5,396    
    1,800     Cooper Cos (The), Inc.     49,176    
    6,100     Coventry Health Care, Inc. *      133,163    
    1,600     Edwards Lifesciences Corp. *      99,008    
    8,400     Health Management Associates, Inc. *      58,044    
    4,700     Health Net, Inc. *      72,004    
    400     ICU Medical, Inc. *      14,876    
    1,000     Invacare Corp.     21,660    
    2,200     Kinetic Concepts, Inc. *      70,290    
    1,800     LifePoint Hospitals, Inc. *      45,234    
    2,500     Lincare Holdings, Inc. *      65,975    
    1,000     MedQuist, Inc.     8,010    
    900     Molina Healthcare, Inc. *      18,225    
    1,600     Odyssey HealthCare, Inc. *      20,608    
    4,700     Omnicare, Inc.     107,583    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Health Care Equipment & Services — continued  
    800     Orthofix International NV *      21,896    
    1,300     Owens & Minor, Inc.     57,525    
    600     Providence Service Corp. (The) *      6,816    
    2,000     PSS World Medical, Inc. *      40,880    
    500     RehabCare Group, Inc. *      10,495    
    1,200     STERIS Corp.     34,824    
    600     Triple-S Management Corp.-Class B *      11,124    
    2,800     Universal American Financial Corp. *      25,704    
    400     Young Innovations, Inc.     9,392    
    Total Health Care Equipment & Services     1,269,777    
        Household & Personal Products — 1.6%  
    3,600     Central Garden & Pet Co.-Class A *      39,600    
    2,000     Herbalife Ltd.     60,560    
    2,100     NBTY, Inc. *      77,826    
    2,700     Nu Skin Enterprises, Inc.-Class A     46,575    
    3,100     Tiens Biotech Group USA, Inc. *      8,959    
    600     USANA Health Sciences, Inc. *      18,912    
    Total Household & Personal Products     252,432    
        Insurance — 13.7%  
    2,400     Allied World Assurance Co. Holdings Ltd.     111,192    
    2,100     American Equity Investment Life Holding Co.     16,947    
    4,300     American Financial Group, Inc.     110,295    
    266     American Physicians Capital, Inc.     7,937    
    300     American Physicians Service Group, Inc.     6,903    
    1,800     Arch Capital Group Ltd. *      116,946    
    3,500     Aspen Insurance Holdings Ltd.     88,900    
    5,200     Axis Capital Holdings Ltd.     158,496    
    400     Baldwin & Lyons, Inc.-Class B     8,848    
    1,800     CNA Surety Corp. *      28,584    
    1,400     Delphi Financial Group, Inc.-Class A     32,718    
    2,800     Endurance Specialty Holdings Ltd.     96,516    
    1,600     Everest Re Group Ltd.     134,896    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Insurance — continued  
    4,100     First American Corp.     129,232    
    9,300     Genworth Financial, Inc.-Class A     98,208    
    3,600     HCC Insurance Holdings, Inc.     95,184    
    1,300     Horace Mann Educators Corp.     15,925    
    300     Infinity Property & Casualty Corp.     13,191    
    2,200     IPC Holdings Ltd.     71,324    
    2,200     Maiden Holdings Ltd.     16,808    
    1,300     Meadowbrook Insurance Group, Inc.     10,361    
    1,000     National Financial Partners Corp.     7,850    
    1,500     Odyssey Re Holdings Corp.     75,975    
    2,400     PartnerRe Ltd.     177,384    
    1,900     Platinum Underwriters Holdings Ltd.     68,875    
    2,400     RenaissanceRe Holdings Ltd.     130,680    
    500     Safety Insurance Group, Inc.     16,065    
    1,100     StanCorp Financial Group, Inc.     41,635    
    500     Stewart Information Services Corp.     7,085    
    1,800     Torchmark Corp.     76,698    
    1,500     Universal Insurance Holdings, Inc.     7,530    
    2,600     Validus Holdings Ltd.     66,716    
    4,700     W.R. Berkley Corp.     120,085    
    Total Insurance     2,165,989    
        Materials — 4.6%  
    200     AEP Industries, Inc. *      7,662    
    2,300     Ball Corp.     111,458    
    2,200     Bemis Co., Inc.     58,498    
    700     Bway Holding Co. *      10,850    
    500     Hawkins, Inc.     10,625    
    1,400     International Flavors & Fragrances, Inc.     49,868    
    2,100     Lubrizol Corp.     133,812    
    900     Omnova Solutions, Inc. *      4,248    
    1,400     Reliance Steel & Aluminum Co.     51,716    
    3,100     RPM International, Inc.     50,468    
    300     Schweitzer-Mauduit International, Inc.     14,754    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Materials — continued  
    2,900     Scotts Miracle-Gro Co. (The)-Class A     118,001    
    600     Spartech Corp.     6,924    
    3,900     Valspar Corp.     104,442    
    Total Materials     733,326    
        Media — 1.0%  
    600     Carmike Cinemas, Inc. *      6,084    
    2,100     Harte-Hanks, Inc.     27,384    
    1,900     Meredith Corp.     52,592    
    1,300     Scholastic Corp.     31,668    
    2,100     Valassis Communications, Inc. *      32,970    
    Total Media     150,698    
        Pharmaceuticals, Biotechnology & Life Sciences — 3.6%  
    3,700     Endo Pharmaceuticals Holdings, Inc. *      83,509    
    10,400     King Pharmaceuticals, Inc. *      107,952    
    500     Matrixx Initiatives, Inc. *      2,695    
    1,900     Medicis Pharmaceutical Corp.-Class A     35,093    
    10,700     Mylan, Inc. *      156,969    
    900     Par Pharmaceutical Cos., Inc. *      18,405    
    4,800     Watson Pharmaceuticals, Inc. *      169,392    
    Total Pharmaceuticals, Biotechnology & Life Sciences     574,015    
        Real Estate — 2.8%  
    766     Altisource Portfolio Solutions SA *      10,977    
    700     American Capital Agency Corp.     17,423    
    8,400     Annaly Capital Management, Inc. REIT     145,656    
    3,900     Anworth Mortgage Asset Corp. REIT     29,211    
    2,700     Ashford Hospitality Trust, Inc. REIT     8,316    
    2,500     Capstead Mortgage Corp. REIT     34,125    
    500     Getty Realty Corp. REIT     11,795    
    1,600     Hatteras Financial Corp. REIT     47,824    
    9,900     HRPT Properties Trust REIT     64,152    
    2,100     iStar Financial, Inc. REIT *      4,431    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Real Estate — continued  
    7,600     MFA Financial, Inc. REIT     60,192    
    1,100     Mission West Properties, Inc. REIT     7,590    
    Total Real Estate     441,692    
        Retailing — 15.0%  
    2,000     Aaron's, Inc.     52,200    
    3,100     Advance Auto Parts, Inc.     131,130    
    2,100     Aeropostale, Inc. *      82,215    
    400     America's Car-Mart, Inc. *      8,240    
    7,000     American Eagle Outfitters, Inc.     94,500    
    1,300     Asbury Automotive Group, Inc. *      16,250    
    7,700     AutoNation, Inc. *      146,146    
    2,200     Barnes & Noble, Inc.     45,518    
    900     Big 5 Sporting Goods Corp.     13,743    
    1,700     Big Lots, Inc. *      43,214    
    700     Books-A-Million, Inc.     9,506    
    1,600     Borders Group, Inc. *      5,072    
    1,500     Buckle (The), Inc.     39,675    
    2,200     Cabela's, Inc. *      35,310    
    1,200     Cato Corp. (The)-Class A     20,496    
    4,200     Charming Shoppes, Inc. *      22,008    
    5,800     Chico's FAS, Inc. *      73,834    
    2,500     Collective Brands, Inc. *      39,600    
    800     Conn's, Inc. *      9,048    
    500     Core-Mark Holding Co., Inc. *      14,355    
    2,500     Dillard's Inc-Class A     28,525    
    3,100     Dollar Tree, Inc. *      154,814    
    1,600     Dress Barn, Inc. *      25,968    
    4,500     Family Dollar Stores, Inc.     136,260    
    1,200     Finish Line (The), Inc.-Class A     9,900    
    4,800     Foot Locker, Inc.     51,168    
    1,200     Fred's, Inc.-Class A     15,696    
    900     Gander Mountain Co. *      5,058    
    300     Genesco, Inc. *      6,570    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Retailing — continued  
    1,000     Group 1 Automotive, Inc.     28,170    
    500     Gymboree Corp. (The) *      22,395    
    500     Haverty Furniture Cos, Inc. *      5,835    
    800     hhgregg, Inc. *      13,824    
    1,900     Hot Topic, Inc. *      13,224    
    800     Jos. A. Bank Clothiers, Inc. *      35,208    
    900     Kirkland's, Inc. *      12,744    
    900     Lithia Motors, Inc.-Class A     11,529    
    2,000     Men's Wearhouse (The), Inc.     52,000    
    600     Monro Muffler, Inc.     15,468    
    5,300     Nordstrom, Inc.     148,612    
    1,000     NutriSystem, Inc.     14,230    
    7,300     Office Depot, Inc. *      38,106    
    1,600     OfficeMax, Inc.     18,096    
    3,200     Penske Auto Group, Inc.     56,608    
    1,000     Pep Boys-Manny Moe & Jack Co. (The)     8,930    
    3,900     PetSmart, Inc.     81,549    
    4,900     RadioShack Corp.     74,137    
    2,700     Rent-A-Center, Inc. *      53,271    
    3,200     Ross Stores, Inc.     149,248    
    900     Sonic Automotive, Inc.     11,538    
    900     Stage Stores, Inc.     12,015    
    1,600     Stein Mart, Inc. *      19,776    
    1,300     Systemax, Inc. *      17,290    
    1,300     Tractor Supply Co. *      61,178    
    1,500     Tuesday Morning Corp. *      6,750    
    1,100     West Marine, Inc. *      9,097    
    3,000     Williams-Sonoma, Inc.     57,390    
    Total Retailing     2,384,237    
        Semiconductors & Semiconductor Equipment — 0.1%  
      1,000     DSP Group, Inc. *      7,900    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Software & Services — 7.3%  
    1,500     Actuate Corp. *      8,430    
    2,000     Acxiom Corp. *      18,240    
    3,000     Affiliated Computer Services, Inc.-Class A *      134,400    
    1,200     CACI International, Inc.-Class A *      55,152    
    5,700     Compuware Corp. *      41,097    
    4,500     Convergys Corp. *      48,780    
    1,700     CSG Systems International, Inc. *      25,619    
    700     Digital River, Inc. *      24,724    
    500     Dynamics Research Corp. *      6,890    
    4,500     EarthLink, Inc. *      37,440    
    500     ePlus, Inc. *      7,900    
    1,900     Fair Isaac Corp.     42,370    
    3,100     Global Cash Access Holdings, Inc. *      22,475    
    3,200     IAC/InterActiveCorp *      59,264    
    2,100     infoGROUP, Inc. *      12,957    
    1,700     j2 Global Communications, Inc. *      36,329    
    1,900     Jack Henry & Associates, Inc.     44,289    
    600     JDA Software Group, Inc. *      11,604    
    500     Manhattan Associates, Inc. *      8,915    
    600     MAXIMUS, Inc.     24,990    
    300     MicroStrategy, Inc.-Class A *      18,525    
    2,900     Quest Software, Inc. *      47,821    
    8,400     SAIC, Inc. *      155,316    
    900     Smith Micro Software, Inc. *      10,395    
    400     SPSS, Inc. *      19,920    
    3,900     Sybase, Inc. *      135,915    
    1,100     TeleTech Holdings, Inc. *      18,766    
    6,900     TIBCO Software, Inc. *      61,203    
    2,500     United Online, Inc.     17,500    
    Total Software & Services     1,157,226    
        Technology Hardware & Equipment — 5.7%  
    9,700     3Com Corp. *      42,195    
    1,300     ADTRAN, Inc.     29,562    
    1,500     Airvana, Inc. *      9,735    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Technology Hardware & Equipment — continued  
    300     Anaren, Inc. *      4,824    
    900     Avocent Corp. *      14,688    
    700     Black Box Corp.     17,528    
    1,600     Brightpoint, Inc. *      11,744    
    7,100     Brocade Communications Systems, Inc. *      51,333    
    7,600     Ingram Micro, Inc.-Class A *      127,376    
    1,200     Insight Enterprises, Inc. *      13,764    
    1,600     Lexmark International, Inc. *      30,144    
    700     Netgear, Inc. *      11,956    
    1,500     Polycom, Inc. *      35,385    
    300     Rimage Corp. *      4,830    
    10,200     Seagate Technology     141,270    
    1,500     SYNNEX Corp. *      44,475    
    2,400     Tech Data Corp. *      91,440    
    9,900     Tellabs, Inc. *      62,766    
    4,700     Western Digital Corp. *      161,116    
    Total Technology Hardware & Equipment     906,131    
        Telecommunication Services — 1.6%  
    4,900     CenturyTel, Inc.     157,927    
    1,200     USA Mobility, Inc.     15,276    
    2,400     Virgin Mobile USA, Inc. *      11,304    
    7,800     Windstream Corp.     66,846    
    Total Telecommunication Services     251,353    
        Transportation — 0.7%  
    2,300     Air Transport Services Group, Inc. *      6,808    
    4,100     Avis Budget Group, Inc. *      39,893    
    1,100     Dollar Thrifty Automotive Group, Inc. *      21,824    
    1,400     Republic Airways Holdings, Inc. *      12,894    
    1,800     Skywest, Inc.     27,810    
    Total Transportation     109,229    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Utilities — 0.9%  
    1,100     New Jersey Resources Corp.     40,425    
    3,900     UGI Corp.     99,489    
    Total Utilities     139,914    
    TOTAL COMMON STOCKS (COST $13,817,195)     15,752,351    
        SHORT-TERM INVESTMENTS — 0.9%  
        Money Market Funds — 0.9%  
    148,830     State Street Institutional Treasury Money Market Fund-Institutional Class     148,830    
    TOTAL SHORT-TERM INVESTMENTS (COST $148,830)     148,830    
          TOTAL INVESTMENTS — 100.3%
(Cost $13,966,025)		     15,901,181    
          Other Assets and Liabilities (net) — (0.3%)     (49,488 )  
    TOTAL NET ASSETS — 100.0%   $ 15,851,693    

 

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, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  1     S&P Midcap 400 E-Mini   September 2009   $ 65,400     $ 9,308    

 

As of August 31, 2009, 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, 2009 (Unaudited)

Assets:  
Investments, at value (cost $13,966,025) (Note 2)   $ 15,901,181    
Receivable for investments sold     300    
Dividends and interest receivable     16,754    
Receivable for collateral on open futures contracts (Note 2)     6,000    
Receivable for expenses reimbursed by Manager (Note 3)     8,525    
Total assets     15,932,760    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     4,169    
Shareholder service fee     2,017    
Trustees and Chief Compliance Officer of GMO Trust fees     9    
Payable for variation margin on open futures contracts (Note 2)     800    
Accrued expenses     74,072    
Total liabilities     81,067    
Net assets   $ 15,851,693    
Net assets consist of:  
Paid-in capital   $ 29,017,353    
Accumulated undistributed net investment income     22,314    
Accumulated net realized loss     (15,132,438 )  
Net unrealized appreciation     1,944,464    
    $ 15,851,693    
Net assets attributable to:  
Class III shares   $ 15,851,693    
Shares outstanding:  
Class III     2,779,794    
Net asset value per share:  
Class III   $ 5.70    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $5)   $ 151,459    
Interest     88    
Total investment income     151,547    
Expenses:  
Management fee (Note 3)     23,197    
Shareholder service fee – Class III (Note 3)     11,224    
Audit and tax fees     28,152    
Custodian, fund accounting agent and transfer agent fees     20,240    
Legal fees     276    
Trustees fees and related expenses (Note 3)     119    
Total expenses     83,208    
Fees and expenses reimbursed by Manager (Note 3)     (48,668 )  
Net expenses     34,540    
Net investment income (loss)     117,007    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (6,203,588 )  
Closed futures contracts     58,700    
Net realized gain (loss)     (6,144,888 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     9,733,980    
Open futures contracts     63,635    
Net unrealized gain (loss)     9,797,615    
Net realized and unrealized gain (loss)     3,652,727    
Net increase (decrease) in net assets resulting from operations   $ 3,769,734    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 117,007     $ 335,298    
Net realized gain (loss)     (6,144,888 )     (5,839,204 )  
Change in net unrealized appreciation (depreciation)     9,797,615       (2,897,819 )  
Net increase (decrease) in net assets from operations     3,769,734       (8,401,725 )  
Distributions to shareholders from:  
Net investment income  
Class III     (120,917 )     (339,148 )  
Net share transactions (Note 7):  
Class III     (923,397 )     (13,439,111 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     7,253       68,983    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (916,144 )     (13,370,128 )  
Total increase (decrease) in net assets     2,732,673       (22,111,001 )  
Net assets:  
Beginning of period     13,119,020       35,230,021    
End of period (including accumulated undistributed net investment
income of $22,314 and $26,224, respectively)		   $ 15,851,693     $ 13,119,020    

 

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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of period   $ 4.44     $ 7.36     $ 10.01     $ 10.52     $ 12.38     $ 15.51    
Income (loss) from investment operations:  
Net investment income (loss)†      0.04       0.10       0.13       0.15       0.20       0.19    
Net realized and unrealized gain (loss)     1.26       (2.92 )     (1.87 )     0.68       1.11       1.32    
Total from investment operations     1.30       (2.82 )     (1.74 )     0.83       1.31       1.51    
Less distributions to shareholders:  
From net investment income     (0.04 )     (0.10 )     (0.13 )     (0.20 )     (0.21 )     (0.16 )  
From net realized gains     —       —       (0.78 )     (1.14 )     (2.96 )     (4.48 )  
Total distributions     (0.04 )     (0.10 )     (0.91 )     (1.34 )     (3.17 )     (4.64 )  
Net asset value, end of period   $ 5.70     $ 4.44     $ 7.36     $ 10.01     $ 10.52     $ 12.38    
Total Return(a)      29.46 %**      (38.76 )%     (18.73 )%     8.71 %     11.67 %     14.98 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 15,852     $ 13,119     $ 35,230     $ 58,452     $ 53,389     $ 80,084    
Net expenses to average daily
net assets		     0.46 %*      0.46 %     0.46 %     0.46 %     0.48 %     0.48 %  
Net investment income to average daily
net assets		     1.56 %*      1.46 %     1.44 %     1.46 %     1.71 %     1.48 %  
Portfolio turnover rate     100 %**      73 %     63 %     79 %     48 %     66 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.65 %*      0.43 %     0.19 %     0.22 %     0.19 %     0.12 %  
Purchase premiums and redemption fees
consisted of the following per share
amounts:† 		   $ 0.00 (b)    $ 0.02     $ 0.01     $ 0.02     $ 0.04     $ 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. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

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

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


20



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO U.S. Small/Mid Cap Value Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the Russell 2500 Value Index. The Fund typically makes equity investments in U.S. companies that issue stocks included in the Russell 2500 Index, a U.S. stock index, and in companies with similar market capitalizations ("small- and mid-cap companies"). Under normal circumstances, the Fund invests at least 80% of its assets in investments in small- and mid-cap companies tied economically to the U.S. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, fu tures, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury 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 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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.


21


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

Asset Valuation Inputs   Investments
in Securities		   Other Financial
Instruments*		  
Level 1 - Quoted Prices   $ 15,752,351     $ 9,308    
Level 2 - Other Significant Observable Inputs     148,830       —    
Level 3 - Significant Unobservable Inputs     —       —    
Total   $ 15,901,181     $ 9,308    

 

*  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   $ —     $ —    

 


22


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

All of the Fund's common stocks are classified as Level 1. Please refer to the Schedule of Investments for a more detailed categorization of common stocks. All short-term investments are classified as Level 2.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. 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 various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.


23


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the


24


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $2,570,608.


25


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of February 28, 2009, 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:

2/28/2017   $ (5,940,234 )  
Total   $ (5,940,234 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 14,393,936     $ 1,934,056     $ (426,811 )   $ 1,507,245    

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds.


26


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Smaller Company Risk — The securities of small- and mid-cap companies typically are less widely held, trade less frequently and in lesser quantities, and have market prices that may fluctuate more than those of securities of larger capitalization companies.

• Market Risk — Value Securities — The Fund purchases some equity securities at prices below what the Manager believes to be their fundamental value. The Fund bears the risk that the price of these securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Liquidity Risk (difficulty in selling Fund investments), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected).


27


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors and markets without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index).

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.


28


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


29


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts* 		     —       —       —       9,308       —       9,308    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 9,308     $ —     $ 9,308    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


30


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       58,700       —       58,700    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 58,700     $ —     $ 58,700    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       63,635       —       63,635    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 63,635     $ —     $ 63,635    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures  
Average notional amount outstanding   $ 249,414    
Highest notional amount outstanding     454,600    
Lowest notional amount outstanding     65,400    

 

Purchases and redemptions of Fund shares

For the six-month period ended August 31, 2009, the premium on cash purchases and fee on cash redemptions of Fund shares were each 0.50% of the amount invested or redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares


31


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholde r's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.31% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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


32


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

in GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.31% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.31% of the Fund's average daily net assets.

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, 2009 was $119 and $0, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $14,492,800 and $14,873,764, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 61.53% 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.

As of August 31, 2009, 0.17% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 95.51% of the Fund's shares were held by accounts for which the Manager had investment discretion.


33


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     44,247     $ 207,962       4,941     $ 32,066    
Shares issued to shareholders
in reinvestment of distributions		     22,391       110,289       47,015       308,041    
Shares repurchased     (238,514 )     (1,241,648 )     (1,889,957 )     (13,779,218 )  
Purchase premiums     —       1,045       —       123    
Redemption fees     —       6,208       —       68,860    
Net increase (decrease)     (171,876 )   $ (916,144 )     (1,838,001 )   $ (13,370,128 )  

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


34



GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature.


35


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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, including the effect of recent market events and c hanges in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 fa ctors, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


36


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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 15, 2009, 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, 2009.


37


GMO U.S. Small/Mid Cap Value Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

Actual Expenses

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

Hypothetical Example for Comparison Purposes

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

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

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.46 %   $ 1,000.00     $ 1,294.60     $ 2.66    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.89     $ 2.35    

 

*  Expenses are calculated using the Class's annualized expense ratio for the six months ended August 31, 2009, 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 Domestic Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     94.7 %  
Short-Term Investments     5.8    
Preferred Stocks     0.1    
Forward Currency Contracts     0.0    
Swaps     (0.1 )  
Reverse Repurchase Agreements     (0.5 )  
Other     0.0    
      100.0 %  

 

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


1



GMO Domestic Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($) /
Shares		   Description   Value ($)  
        DEBT OBLIGATIONS — 6.6%        
        Corporate Debt — 1.0%        
  9,312,000     Health Care Property Investors, Inc., Series G, MTN, 5.63%, due 02/28/13     8,784,010    
        U.S. Government — 4.0%        
  34,431,760     U.S. Treasury Inflation Indexed Bond, 0.88%, due 04/15/10 (a)      34,377,977    
        U.S. Government Agency — 1.6%        
  8,465,625     Agency for International Development Floater (Support of India),
3 mo. LIBOR + .10%, 0.58%, due 02/01/27 (b) 		     7,174,961    
  2,750,000     Agency for International Development Floater (Support of Jamaica),
6 mo. LIBOR + 0.30%, 1.10%, due 12/01/14 (b) 		     2,655,611    
  628,867     Agency for International Development Floater (Support of Jamaica),
6 mo. U.S. Treasury Bill + 0.75%, 1.01%, due 03/30/19 (b) 		     589,393    
  2,085,000     Agency for International Development Floater (Support of Sri Lanka),
6 mo. LIBOR + .20%, 1.00%, due 06/15/12 (b) 		     2,041,166    
  1,166,669     Agency for International Development Floater (Support of Zimbabwe),
3 mo. U.S. Treasury Bill x 115%, 0.20%, due 01/01/12 (b) 		     1,132,730    
    Total U.S. Government Agency     13,593,861    
    TOTAL DEBT OBLIGATIONS (COST $59,594,075)     56,755,848    
        PREFERRED STOCKS — 0.1%        
        Banking — 0.1%        
  8,000     Home Ownership Funding 2 Preferred 144A, 1.00% (b)      720,000    
    TOTAL PREFERRED STOCKS (COST $2,060,969)     720,000    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 90.8%        
        Affiliated Issuers — 90.8%        
  47,223,590     GMO Short-Duration Collateral Fund     757,938,615    
  1,483     GMO Special Purpose Holding Fund (c)      934    
  936,909     GMO U.S. Treasury Fund     23,432,106    
    TOTAL MUTUAL FUNDS (COST $889,946,372)     781,371,655    
        SHORT-TERM INVESTMENTS — 2.4%        
        Money Market Funds — 2.4%        
  9,618,396     State Street Institutional Liquid Reserves Fund-Institutional Class     9,618,396    
  10,846,910     State Street Institutional Treasury Plus Money Market Fund-Institutional Class     10,846,910    
    TOTAL SHORT-TERM INVESTMENTS (COST $20,465,306)     20,465,306    
        TOTAL INVESTMENTS — 99.9%
(Cost $972,066,722)		     859,312,809    
        Other Assets and Liabilities (net) — 0.1%     755,660    
    TOTAL NET ASSETS — 100.0%   $ 860,068,469    

 

See accompanying notes to the financial statements.


3


GMO Domestic Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  11,500,000     USD   3/20/2013   Barclays   (Pay)     0.61 %     2.78 %   Health Care   NA     $ 795,815    
            Bank PLC         Properties        
    $ 795,815    
    Premiums to (Pay) Receive   $ —    

 

^  Receive - Fund receives premium and sells credit protection.
(Pay) - Fund pays premium and buys credit protection.

(1)  Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on the reference security, as of August 31, 2009, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider (i.e. higher) credit spreads represent a deterioration of the referenced entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(2)  The maximum potential amount the Fund could be required to make as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

As of August 31, 2009, for the swap contracts held, the Fund had sufficient cash and/or securities to cover any commitments or collateral 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, 2009 (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

The rates shown on variable rate notes are the current interest rates at August 31, 2009, 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.

(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:

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, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $82,120,350) (Note 2)   $ 77,941,154    
Investments in affiliated issuers, at value (cost $889,946,372) (Notes 2 and 8)     781,371,655    
Dividends and interest receivable     144,551    
Receivable for open swap contracts (Note 2)     795,815    
Receivable for expenses reimbursed by Manager (Note 3)     56,418    
Total assets     860,309,593    
Liabilities:  
Payable for investments purchased     5,377    
Payable to affiliate for (Note 3):  
Management fee     72,165    
Shareholder service fee     57,671    
Trustees and Chief Compliance Officer of GMO Trust fees     2,071    
Accrued expenses     103,840    
Total liabilities     241,124    
Net assets   $ 860,068,469    
Net assets consist of:  
Paid-in capital   $ 988,365,581    
Distributions in excess of net investment income     (2,936,124 )  
Distributions in excess of net realized gains     (13,402,890 )  
Net unrealized depreciation     (111,958,098 )  
    $ 860,068,469    
Net assets attributable to:  
Class III shares   $ 191,494,561    
Class VI shares   $ 668,573,908    
Shares outstanding:  
Class III     29,430,675    
Class VI     102,657,260    
Net asset value per share:  
Class III   $ 6.51    
Class VI   $ 6.51    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 6,219,498    
Interest     1,764,850    
Dividends     12,018    
Total investment income     7,996,366    
Expenses:  
Management fee (Note 3)     459,840    
Shareholder service fee – Class III (Note 3)     213,461    
Shareholder service fee – Class VI (Note 3)     174,643    
Custodian, fund accounting agent and transfer agent fees     71,116    
Audit and tax fees     32,200    
Legal fees     27,876    
Trustees fees and related expenses (Note 3)     14,302    
Registration fees     2,668    
Miscellaneous     8,554    
Total expenses     1,004,660    
Fees and expenses reimbursed by Manager (Note 3)     (128,616 )  
Fees and expenses waived by Manager (Note 3)     (181,584 )  
Net expenses     694,460    
Net investment income (loss)     7,301,906    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     369,965    
Investments in affiliated issuers     48,761    
Closed futures contracts     (3,687,667 )  
Closed swap contracts     5,892,515    
Written options     (996,375 )  
Net realized gain (loss)     1,627,199    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     11,437,389    
Investments in affiliated issuers     108,596,400    
Open futures contracts     1,547,694    
Open swap contracts     (2,541,876 )  
Net unrealized gain (loss)     119,039,607    
Net realized and unrealized gain (loss)     120,666,806    
Net increase (decrease) in net assets resulting from operations   $ 127,968,712    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 7,301,906     $ 58,828,164    
Net realized gain (loss)     1,627,199       8,021,440    
Change in net unrealized appreciation (depreciation)     119,039,607       (198,980,256 )  
Net increase (decrease) in net assets from operations     127,968,712       (132,130,652 )  
Distributions to shareholders from:  
Net investment income  
Class III     (4,540,304 )     (6,956,865 )  
Class VI     (9,701,414 )     (53,135,218 )  
Total distributions from net investment income     (14,241,718 )     (60,092,083 )  
Net realized gains  
Class III     (19,446,942 )     (313,474 )  
Class VI     (41,539,732 )     (2,316,108 )  
Total distributions from net realized gains     (60,986,674 )     (2,629,582 )  
Return of capital  
Class III     (79,174,703 )     —    
Class VI     (169,596,909 )     —    
Total distributions from return of capital     (248,771,612 )     —    
      (324,000,004 )     (62,721,665 )  
Net share transactions (Note 7):  
Class III     (82,320,035 )     215,412,245    
Class VI     80,129,862       311,273,145    
Increase (decrease) in net assets resulting from net share transactions     (2,190,173 )     526,685,390    
Redemption fees (Notes 2 and 7):  
Class III     10,529       65,120    
Class VI     24,504       544,931    
Increase in net assets resulting from redemption fees     35,033       610,051    
Total increase (decrease) in net assets resulting from net share
transactions and redemption fees		     (2,155,140 )     527,295,441    
Total increase (decrease) in net assets     (198,186,432 )     332,443,124    
Net assets:  
Beginning of period     1,058,254,901       725,811,777    
End of period (including distributions in excess of net investment
income of $2,936,124 and accumulated undistributed net
investment income $4,003,688, respectively)		   $ 860,068,469     $ 1,058,254,901    

 

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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 7.99     $ 9.47     $ 9.81     $ 9.81     $ 9.84     $ 10.07    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.05       0.39       0.42       0.43       0.13       0.16    
Net realized and unrealized
gain (loss)		     0.91       (1.36 )     (0.01 )     0.06       0.16       0.04    
Total from investment operations     0.96       (0.97 )     0.41       0.49       0.29       0.20    
Less distributions to shareholders:  
From net investment income     (0.10 )     (0.50 )     (0.75 )     (0.49 )     (0.16 )     (0.16 )  
From net realized gains     (0.46 )     (0.01 )     —       —       (0.16 )     (0.27 )  
Return of capital     (1.88 )     —       —       —       —       (0.00 )(b)   
Total distributions     (2.44 )     (0.51 )     (0.75 )     (0.49 )     (0.32 )     (0.43 )  
Net asset value, end of period   $ 6.51     $ 7.99     $ 9.47     $ 9.81     $ 9.81     $ 9.84    
Total Return(c)      15.38 %**      (10.39 )%     4.35 %     5.09 %     3.02 %     2.02 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 191,495     $ 337,524     $ 144,286     $ 94,159     $ 125,188     $ 736,300    
Net expenses to average daily net
assets(d) 		     0.22 %*      0.26 %(e)      0.25 %(e)      0.25 %     0.25 %     0.25 %  
Net investment income to average
daily net assets(a) 		     1.57 %*      4.43 %     4.28 %     4.42 %     1.30 %     1.57 %  
Portfolio turnover rate     14 %**      68 %     22 %     17 %     24 %     11 %  
Fees and expenses reimbursed
and/or waived by the Manager
to average daily net assets:		     0.07 %*      0.02 %     0.03 %     0.03 %     0.02 %     0.03 %  
Redemption fees consisted of the
following per share amounts:† 		   $ 0.00 (f)    $ 0.00 (f)      —       —       —       —    

 

(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 is less than $0.01.

(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 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)  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.


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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006(a)   
Net asset value, beginning of period   $ 7.99     $ 9.48     $ 9.82     $ 9.82     $ 9.93    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.06       0.44       0.57       0.48       0.24    
Net realized and unrealized gain (loss)     0.90       (1.41 )     (0.15 )     0.02       (0.14 )(c)   
Total from investment operations     0.96       (0.97 )     0.42       0.50       0.10    
Less distributions to shareholders:  
From net investment income     (0.10 )     (0.51 )     (0.76 )     (0.50 )     (0.21 )  
From net realized gains     (0.46 )     (0.01 )     —       —       —    
Return of capital     (1.88 )     —       —       —       —    
Total distributions     (2.44 )     (0.52 )     (0.76 )     (0.50 )     (0.21 )  
Net asset value, end of period   $ 6.51     $ 7.99     $ 9.48     $ 9.82     $ 9.82    
Total Return(d)      15.37 %**      (10.40 )%     4.42 %     5.19 %     0.97 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 668,574     $ 720,731     $ 581,526     $ 327,796     $ 359,958    
Net expenses to average daily net assets(e)      0.12 %*      0.16 %(f)      0.16 %(f)      0.16 %     0.16 %*   
Net investment income to average daily
net assets(b) 		     1.60 %*      5.02 %     5.87 %     4.85 %     2.38 %(g)   
Portfolio turnover rate     14 %**      68 %     22 %     17 %     24 %††   
Fees and expenses reimbursed and/or
waived by the Manager to average
daily net assets:		     0.07 %*      0.02 %     0.03 %     0.03 %     0.02 %*   
Redemption fees consisted of the
following per share amounts:† 		   $ 0.00 (h)    $ 0.00 (h)      —       —       —    

 

(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 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 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.

(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.

(h)  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, 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, 2009 (Unaudited)

1.  Organization

GMO Domestic Bond Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 Barclays Capital U.S. Government Index (formerly Lehman Brothers U.S. Government Index). The Fund typically invests in bonds included in the Fund's benchmark and in securities and instruments with similar characteristics. The Fund may implement its strategies: (i) synthetically by using exchange-traded and over-the-counter ("OTC") derivatives and investing in other series of the Trust and/or (ii) directly by purchasing bonds. The Fund has historically gained its investment exposure primarily through the use of derivatives and investments in other series of the Trust. As a result, the Fund has substantial holdings of GMO Short-Duration Collateral Fund ("SDCF") (a Fund that invests primarily in asset backed securities). Under normal circumstances, the Fund invests directly or indirectly at least 80% of its assets in bonds tied economically to the U.S. For these pu rposes, the term "bond" includes (i) obligations of an issuer to make payments of principal and/or interest on future dates and (ii) synthetic debt instruments created by the Manager by using a futures contract, swap contract, currency forward or option. To implement its investment strategies, the Fund may invest in or hold: 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); derivatives, including without limitation, futures contracts, credit default swaps and other swap contracts; shares of SDCF (to gain exposure to asset-backed securities); and shares of U.S. Treasury Fund (for liquidity management purposes). Because of the Fund's investment in SDCF, the Fund currently holds and may continue to hold material positions of below investment grade securities. The Fund also may invest a portion of its assets in foreign bonds and lower-rated securities, and in unaffiliated money market funds.< /font>

As of August 31, 2009, the Fund had two classes of shares outstanding: Class III and Class VI. Each class of shares bears a different shareholder service fee.

Since April 2009, the Fund has declared and paid dividends when it has acquired a meaningful cash position rather than reinvesting that cash in portfolio securities. The Fund intends to continue this practice for the time being.

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). As of August 31, 2009, shares of SDCF and GMO Special Purpose Holding Fund ("SPHF") were not publicly available for direct purchase.


11


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

From prior to March 1, 2009 through July 12, 2009, the Fund had a policy to effect redemptions of its shares in-kind above de minimis levels. The Fund had established de minimis amounts below which redemptions would be honored for cash. Beginning July 13, 2009, the Fund had a policy to pay redemption requests with cash (less a redemption fee).

On March 19, 2009, the Trustees approved GMO's plan to maximize the amount of cash distributed to shareholders that represents receipts on its portfolio holdings (including shares of the underlying funds) and from dispositions of those holdings. The plan was adopted in light of the requirements of Section 562 (b) of the Code and calls for the Fund to cease operations within 2 years. For purposes of meeting that timetable, the Fund may distribute securities (including shares of the underlying funds) in-kind (See Note 9 — Subsequent events).

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.

As of August 31, 2009, a significant portion of the Fund's dividends received from other GMO funds is expected to be a return of capital for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" reported in the Statement of Operations has been reduced by the portion estimated to be a return of capital as of August 31, 2009. The estimated return of capital is $158,172,001. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the estimated return of capital. Furthermore, the "distributions to shareholders from return of capital" disclosed in the Statement of Changes in Net Assets and Financial Highlights are also estimates as of August 31, 2009. Both the dividends from affiliated issuers and distributions to shareholders from return of capital are subject to change and will not be finalized until February 28, 2010, the Fund's upcoming fiscal yea r-end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of


12


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 18.90% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund valued certain debt securities and preferred stocks using a specified spread above the LIBOR Rate. The Fund also utilizes third party valuation services (which use industry standard models and inputs from pricing vendors) to value credit default swaps.


13


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Debt Obligations  
Corporate Debt   $ —     $ 8,784,010     $ —     $ 8,784,010    
U.S. Government     —       34,377,977       —       34,377,977    
U.S. Government Agency     —       —       13,593,861       13,593,861    
TOTAL DEBT OBLIGATIONS     —       43,161,987       13,593,861       56,755,848    
Preferred Stocks     —       —       720,000       720,000    
Mutual Funds     23,432,106       757,939,549       —       781,371,655    
Short-Term Investments     —       20,465,306       —       20,465,306    
Total Investments     23,432,106       821,566,842       14,313,861       859,312,809    
Derivatives  
Swap Agreements     —       —       795,815       795,815    
Total   $ 23,432,106     $ 821,566,842     $ 15,109,676     $ 860,108,624    

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (both direct and indirect) in securities and other financial instruments using Level 3 inputs were 73.33% and (0.12)% of total net assets, respectively.

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Debt Obligations  
U.S. Government
Agency		   $ 15,008,442     $ (1,101,632 )   $ (27,332 )   $ (182 )   $ (285,435 )   $ —     $ 13,593,861    
Preferred Stocks     720,000       —       —       —       —       —       720,000    
Mutual Funds     1,082       —       —       —       (148 )     (934 )     —    
Swaps     3,621,898       605,196       —       (605,196 )     (2,826,083 )     —       795,815    
Total   $ 19,351,422     $ (496,436 )   $ (27,332 )   $ (605,378 )   $ (3,111,666 )   $ (934 )   $ 15,109,676    

 


14


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.


15


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts outstanding at the end of the period.

For the period ended August 31, 2009, investment activity in options contracts written by the Fund was as follows:

    Puts   Calls  
    Principal
Amount
of Contracts		   Number of
Contracts		   Premiums   Principal
Amount
of Contracts		   Number of
Contracts		   Premiums  
Outstanding,
beginning of period		   $ —       —     $ —     $ —       —     $ —    
Options written     —       —       —       —       (3,000 )     (3,040,875 )  
Options exercised     —       —       —       —       3,000       3,040,875    
Options expired     —       —       —       —       —       —    
Options sold     —       —       —       —       —       —    
Outstanding,
end of period		   $ —       —     $ —     $ —       —     $ —    

 

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.


16


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.


17


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. The Fund had no reverse repurchase agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants at the end of the period.


18


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 carryforwards 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. The Fund is permitted to, and will from time to time, declare and pay distributions from net investment income, if any, more frequently (e.g. monthly). As of August 31, 2009, all distributions have been paid in cash. 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.

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

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:



Aggregate Cost		  
Gross Unrealized
Appreciation		  
Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 988,632,658     $ 10,250     $ (129,330,099 )   $ (129,319,849 )  

 

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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to


19


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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 incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through August 2, 2009, the fee on cash redemptions was 2.00% of the amount redeemed. From August 3, 2009 through August 31, 2009, the fee on cash redemptions was 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the


20


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

purchase premium or redemption fee relating to a cash purchase or redemption of a Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermedia ry platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Derivatives Risk — The use of derivatives involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. The Fund may be required to sell certain less liquid securities at distressed prices or to meet redemption requests in-kind. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular the asset-backed securities held by the Fund through SDCF.

• Focused Investment Risk — Focusing investments in countries, regions, or sectors with high positive correlations to one another creates additional risk. This risk may be particularly pronounced for the Fund because of its exposure to asset-backed securities secured by different types of consumer debt (e.g., credit-card receivables, automobile loans, and home equity loans).


21


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Other principal risks of an investment in the Fund include Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected), Credit and Counterparty Risk (risk of default of an issuer of a portfolio security or a derivatives counterparty or a borrower of the Fund's securities), Leveraging Risk (increased risks from use of reverse repurchase agreements and other derivatives and securities lending), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified. For more information about reverse repurchase agreements and other derivatives, please refer to the descriptions of financial instruments (e.g. reverse repurchase agreements, swaps, futures and other types of derivative contracts) in Note 2 above as well as the discussion of the Fund's use of derivatives below.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of u nderlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that


22


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

they will not deteriorate further. Also, government actions and proposals affecting the terms of underlying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

The Fund uses its cash balance to meet its collateral obligations and for other purposes. There is no assurance that the Fund's cash balance will be sufficient to meet those obligations. If it is not, the Fund would be required to liquidate portfolio positions. To manage the Fund's cash collateral needs, the Manager reserves the right to reduce or eliminate the Fund's derivative exposures. A reduction in those exposures may cause the performance of the 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.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund uses derivatives as a substitute for direct investment in securities or other assets. In particular, the Fund may use swaps (including credit default swaps) or other derivatives on an index, a single security or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.


23


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.


24


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


25


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Assets:  
Investments, at value (purchased
options)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on futures
contracts* 		     —       —       —       —       —       —    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       795,815       —       —       795,815    
Total   $ —     $ —     $ 795,815     $ —     $ —     $ 795,815    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on futures
contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


26


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     (3,687,667 )     —       —       —       —       (3,687,667 )  
Swap contracts     6,497,711       —       (605,196 )     —       —       5,892,515    
Written options     (996,375 )     —       —       —       —       (996,375 )  
Forward currency contracts     —       —       —       —       —       —    
Total   $ 1,813,669     $ —     $ (605,196 )   $ —     $ —     $ 1,208,473    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     1,547,694       —       —       —       —       1,547,694    
Swap contracts     284,207       —       (2,826,083 )     —       —       (2,541,876 )  
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ 1,831,901     $ —     $ (2,826,083 )   $ —     $ —     $ (994,182 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures   Swaps   Options  
Average notional amount outstanding   $ 208,085,917     $ 233,477,469     $ 857,143    
Highest notional amount outstanding     933,826,172       1,565,342,285       6,000,000    
Lowest notional amount outstanding     —       11,500,000       —    

 

Other matters

GMO Special Purpose Holding Fund ("SPHF"), an investment of the Fund, has litigation pending against various entities related to the 2002 default of securities previously held by SPHF. The outcome of the lawsuits against the remaining defendants is not known and any potential recoveries are not reflected in the net asset value of SPHF.


27


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee is paid monthly at the annual rate of 0.10% of average daily net assets. Beginning on April 3, 2009 and continuing through August 31, 2009, the Manager has voluntarily agreed to waive the Fund's management fee by 0.05%. The Manager may change or terminate this waiver at any time, and this waiver is in addition to the Manager's contractual expense reimbursement agreement described below. During any period for which the voluntary management fee waiver is in effect, the Fund will incur management fees at an annual rate lower than 0.10% of the Fund's average daily net assets. The Fund has adopted a Shareholder Service Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Service Plan, the shareholder service fee is calculated based on average daily net a ssets 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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.10% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.10% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.10% of the Fund's average daily net assets.


28


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder of the underlying funds. For the period ended August 31, 2009, 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		  
  0.005 %     0.000 %     0.002 %     0.007 %  

 

        

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, 2009 was $14,302 and $4,692, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.

4.  Purchases and sales of securities

For the period ended August 31, 2009, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ —     $ 161,877,925    
Investments (non-U.S. Government securities)     127,942,524       107,040,339    

 

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 75.19% 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.


29


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, no shares of the Fund were held by senior management of the Manager and GMO Trust officers and 93.92% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		  
Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     —     $ —       38,472,777     $ 321,100,621    
Shares issued to shareholders
in reinvestment of distributions		     —       —       765,227       6,493,461    
Shares repurchased     (12,821,339 )     (82,320,035 )     (12,226,577 )     (112,181,837 )  
Redemption fees     —       10,529       —       65,120    
Net increase (decrease)     (12,821,339 )   $ (82,309,506 )     27,011,427     $ 215,477,365    
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		      
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     12,490,708     $ 80,209,775       106,478,381     $ 970,656,989    
Shares issued to shareholders
in reinvestment of distributions		     —       —       3,251,921       28,578,791    
Shares repurchased     (9,734 )     (79,913 )     (80,899,819 )     (687,962,635 )  
Redemption fees     —       24,504       —       544,931    
Net increase (decrease)     12,480,974     $ 80,154,366       28,830,483     $ 311,818,076    

 


30


GMO Domestic Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 807,523,384     $ —     $ —     $ 6,145,474     $ —     $ 757,938,615    
GMO Special Purpose
Holding Fund		     1,082       —       —       —       —       934    
GMO U.S. Treasury Fund     —       124,374,024       101,000,000       74,024       —       23,432,106    
Totals   $ 807,524,466     $ 124,374,024     $ 101,000,000     $ 6,219,498     $ —     $ 781,371,655    

 

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. On September 14, 2009, the Fund's redemption fee was eliminated.

On March 19, 2009, the Trustees of the Trust adopted a plan to cease the operations of the Fund within two years of that date. On October 19, 2009, the Trustees revoked that plan. "Distributions to shareholders", as disclosed in the Statement of Changes in Net Assets and the Financial Highlights for the period ended August 31, 2009 ("the statements"), have been adjusted to reclassify a portion of the distributions initially declared as a "return of capital" to "distributions from net investment income". The estimated sources of the distributions to shareholders as disclosed in the statements are subject to reclassification (depending on subsequent Fund operations) and will not be finalized until February 28, 2010, the Fund's fiscal year-end.

The Fund previously reported the estimated sources of "dividends" and "distributions from return of capital" paid on a per share basis. Pursuant to Rule 19a-1(e) of the Investment Company Act of 1940, the following serves as an update to the previously reported estimated sources of the distributions paid to shareholders. 3.78% of the distributions designated as "distributions from return of capital" in the six month period ended August 31, 2009 have been reclassified as distributions from "dividends" (income derived from dividends, interest and other income sources).


31



GMO Domestic Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered information provided by the Manager addressing the Fund's performance, including a performance attribution analysis. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those p ersonnel 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


32


GMO Domestic Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

concerning fees paid to managers of funds deemed by those services to have similar objectives. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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. The Trustees noted 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 M anager effectively reimburses the Fund for advisory fees, shareholder fees and most other expenses of the underlying funds 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


33


GMO Domestic Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


34


GMO Domestic Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including 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, 2009 through August 31, 2009.

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     0.22 %   $ 1,000.00     $ 1,153.80     $ 1.19    
2) Hypothetical     0.22 %   $ 1,000.00     $ 1,024.10     $ 1.12    
Class VI      
1) Actual     0.13 %   $ 1,000.00     $ 1,153.70     $ 0.71    
2) Hypothetical     0.13 %   $ 1,000.00     $ 1,024.55     $ 0.66    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


35



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


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

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Debt Obligations     93.4 %  
Options Purchased     12.8    
Short-Term Investments     8.3    
Swaps     (2.3 )  
Written Options     (4.0 )  
Reverse Repurchase Agreements     (10.1 )  
Other     1.9    
      100.0 %  
Industry Summary   % of Debt Obligations  
U.S. Government & Agencies     20.7 %  
Credit Cards     14.8    
Auto Financing     11.3    
Residential Asset-Backed Securities (United States)     11.2    
Insured Auto Financing     8.7    
Foreign Government Obligations     5.4    
CMBS     5.1    
Residential Mortgage-Backed Securities (European)     4.1    
Business Loans     3.8    
Investment Grade Corporate Collateralized Debt Obligations     3.4    
Student Loans     2.1    
Residential Mortgage-Backed Securities (Australian)     2.1    
Insured Other     1.7    
Equipment Leases     1.1    
Bank Loan Collateralized Debt Obligations     1.1    
Insurance Premiums     1.0    
CMBS Collateralized Debt Obligations     0.7    
Insured Residential Asset-Backed Securities (United States)     0.6    
Insured Time Share     0.5    
Insured Transportation     0.5    
Insured Residential Mortgage-Backed Securities (United States)     0.1    
Residential Mortgage-Backed Securities (United States)     0.0    
      100.0 %  

 


1



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
            DEBT OBLIGATIONS — 93.4%        
            Asset-Backed Securities — 69.1%        
        Auto Financing — 10.6%  
    3,199,036     BMW Vehicle Lease Trust, Series 07-1, Class A3B, 1 mo. LIBOR + .24%,
0.51%, due 08/15/13		     3,197,241    
    6,200,000     Capital Auto Receivable Asset Trust, Series 07-2, Class A4B,
1 mo. LIBOR + .40%, 0.67%, due 02/18/14 (a) 		     6,156,600    
    9,000,000     Carmax Auto Owner Trust, Series 08-2, Class A4B, 1 mo. LIBOR + 1.65%,
1.92%, due 08/15/13		     9,071,460    
    4,685,000     Daimler Chrysler Auto Trust, Series 08-B, Class A4A, 5.32%, due 11/10/14     4,931,731    
    791,404     Daimler Chrysler Master Owner Trust, Series 06-A, Class A,
1 mo. LIBOR + .03%, 0.30%, due 11/15/11		     787,692    
    6,800,000     Ford Credit Auto Owner Trust, Series 06-C, Class A4B, 1 mo. LIBOR + .04%,
0.31%, due 02/15/12 (a) 		     6,754,644    
    1,700,000     Ford Credit Auto Owner Trust, Series 07-B, Class A4B, 1 mo. LIBOR + .38%,
0.65%, due 07/15/12		     1,678,750    
    11,790,000     Ford Credit Floorplan Master Owner Trust, Series 06-4, Class A,
1 mo. LIBOR + .25%, 0.52%, due 06/15/13		     10,964,700    
    9,000,000     Merrill Auto Trust Securitization, Series 08-1, Class A4B, 1 mo. LIBOR + 2.20%,
2.47%, due 04/15/15		     9,135,000    
    3,700,000     Merrill Auto Trust Securitization, Series 07-1, Class A4, 1 mo. LIBOR + .06%,
0.33%, due 12/15/13		     3,638,950    
    11,600,000     Nissan Auto Receivables Owner Trust, Series 07-A, Class A4, 1 mo. LIBOR,
0.27%, due 06/17/13		     11,538,497    
    2,000,000     Swift Master Auto Receivables Trust, Series 07-1, Class A,
1 mo. LIBOR + .10%, 0.37%, due 06/15/12		     1,860,000    
    7,100,000     Truck Retail Installment Paper Corp., Series 05-1A, Class A, 144A,
1 mo. LIBOR + .27%, 0.54%, due 12/15/16		     6,124,467    
    11,600,000     World Omni Auto Receivables Trust, Series 07-A, Class A4, 1 mo. LIBOR,
0.27%, due 11/15/12		     11,425,768    
    Total Auto Financing     87,265,500    
        Bank Loan Collateralized Debt Obligations — 1.0%  
    3,687,716     Arran Corp. Loans No. 1 B.V., Series 06-1A, Class A3, 144A,
3 mo. LIBOR + .17%, 0.78%, due 06/20/25		     3,433,033    
    5,360,000     Omega Capital Europe Plc, Series GLOB-5A, Class A1, 144A,
3 mo. LIBOR + .25%, 0.83%, due 07/05/11		     4,770,400    
    Total Bank Loan Collateralized Debt Obligations     8,203,433    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Business Loans — 3.6%  
    1,572,649     Bayview Commercial Asset Trust, Series 04-3, Class A1, 144A,
1 mo. LIBOR + .37%, 0.64%, due 01/25/35		     1,100,855    
    2,374,371     Bayview Commercial Asset Trust, Series 05-4A, Class A2, 144A,
1 mo. LIBOR + .39%, 0.66%, due 01/25/36		     1,543,341    
    9,000,000     Bayview Commercial Asset Trust, Series 07-6A, Class A2, 144A,
1 mo. LIBOR + 1.30%, 1.57%, due 12/25/37		     5,805,000    
    605,491     Capitalsource Commercial Loan Trust, Series 06-1A, Class A1, 144A,
1 mo. LIBOR + .12%, 0.39%, due 08/22/16		     496,503    
    1,483,664     GE Business Loan Trust, Series 05-2A, Class A, 144A, 1 mo. LIBOR + .24%,
0.51%, due 11/15/33		     919,871    
    10,900,000     GE Dealer Floorplan Master Trust, Series 07-2, Class A,
1 mo. LIBOR + .01%, 0.28%, due 07/20/12		     10,732,140    
    2,029,960     Lehman Brothers Small Balance Commercial, Series 05-1A, Class A, 144A,
1 mo. LIBOR + .25%, 0.52%, due 02/25/30		     1,258,575    
    1,457,292     Lehman Brothers Small Balance Commercial, Series 05-2A, Class 1A, 144A,
1 mo. LIBOR + .25%, 0.52%, due 09/25/30		     874,375    
    998,937     Lehman Brothers Small Balance Commercial, Series 07-2A, Class 1A1, 144A,
1 mo. LIBOR + .12%, 0.39%, due 06/25/37		     749,203    
    425,912     Lehman Brothers Small Balance Commercial, Series 07-3A, Class 1A1, 144A,
1 mo. LIBOR + .65%, 0.92%, due 10/25/37		     370,543    
    2,700,000     Lehman Brothers Small Balance Commercial, Series 07-3A, Class 1A2, 144A,
1 mo. LIBOR + .85%, 1.12%, due 10/25/37		     1,701,000    
    4,300,000     Navistar Financial Dealer Note Master Trust, Series 05-1, Class A,
1 mo. LIBOR + .11%, 0.38%, due 02/25/13		     4,171,000    
    Total Business Loans     29,722,406    
        CMBS — 4.7%  
    5,200,000     Citigroup/Deutsche Bank Commercial Mortgage, Series 05-CD1, Class A2FL,
1 mo. LIBOR + .12%, 0.39%, due 07/15/44		     3,640,000    
    11,500,000     Commercial Mortgage Pass-Through Certificates, Series 06-FL12, Class AJ,
144A, 1 mo. LIBOR + .13%, 0.40%, due 12/15/20		     6,325,000    
    5,200,000     GE Capital Commercial Mortgage Corp., Series 05-C4, Class A2, 5.31%,
due 11/10/45		     5,217,680    
    3,600,000     GE Capital Commercial Mortgage Corp., Series 06-C1, Class A2, 5.51%,
due 03/10/44		     3,616,200    
    959,788     Greenwich Capital Commercial Funding Corp., Series 06-FL4A, Class A1,
144A, 1 mo. LIBOR + .09%, 0.37%, due 11/05/21		     825,418    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        CMBS — continued  
    6,000,000     GS Mortgage Securities Corp., Series 06-GG6, Class A2, 5.51%, due 04/10/38     5,983,125    
    554,933     Lehman Brothers Floating Rate Commercial, Series 06-LLFA, Class A1,
144A, 1 mo. LIBOR + .08%, 0.35%, due 09/15/21		     474,467    
    5,400,000     Merrill Lynch Mortgage Trust, Series 06-C1, Class A2, 5.79%, due 05/12/39     5,434,020    
    2,700,000     Morgan Stanley Capital I, Series 06-IQ11, Class A3, 5.91%, due 10/15/42     2,632,230    
    6,906,199     Wachovia Bank Commercial Mortgage Trust, Series 06-WL7A, Class A1,
144A, 1 mo. LIBOR + .09%, 0.36%, due 09/15/21		     4,972,463    
    Total CMBS     39,120,603    
        CMBS Collateralized Debt Obligations — 0.7%  
    6,780,000     American Capital Strategies Ltd. Commercial Real Estate CDO Trust,
Series 07-1A, Class A, 144A, 3 mo. LIBOR + .80%, 1.21%, due 11/23/52		     474,600    
    4,673,285     Guggenheim Structured Real Estate Funding, Series 05-2A, Class A, 144A,
1 mo. LIBOR + .32%, 0.59%, due 08/26/30		     1,635,650    
    6,450,000     Marathon Real Estate CDO, Series 06-1A, Class A1, 144A,
1 mo. LIBOR + .33%, 0.60%, due 05/25/46		     3,354,000    
    Total CMBS Collateralized Debt Obligations     5,464,250    
      Credit Cards — 13.8%  
    7,900,000     American Express Credit Account Master Trust, Series 05-5, Class A,
1 mo. LIBOR + .04%, 0.31%, due 02/15/13		     7,861,448    
    4,100,000     American Express Credit Account Master Trust, Series 06-1, Class A,
1 mo. LIBOR + .03%, 0.30%, due 12/15/13		     4,029,533    
    7,100,000     Cabela's Master Credit Card Trust, Series 08-4A, Class A2, 144A,
1 mo. LIBOR + 3.00%, 3.27%, due 09/15/14		     7,286,801    
    4,500,000     Capital One Multi-Asset Execution Trust, Series 04-A7, Class A7,
3 mo. LIBOR + .15%, 0.59%, due 06/16/14		     4,411,395    
    8,700,000     Capital One Multi-Asset Execution Trust, Series 06-A14, Class A,
1 mo. LIBOR + .01%, 0.28%, due 08/15/13		     8,569,500    
    8,100,000     Capital One Multi-Asset Execution Trust, Series 08-A6, Class A6,
1 mo. LIBOR + 1.10%, 1.37%, due 03/17/14		     8,039,250    
    7,700,000     Charming Shoppes Master Trust, Series 07-1A, Class A1, 144A,
1 mo. LIBOR + 1.25%, 1.52%, due 09/15/17		     7,113,953    
    9,100,000     Citibank OMNI Master Trust, Series 07-A9A, Class A9, 144A,
1 mo. LIBOR + 1.10%, 1.37%, due 12/23/13		     9,063,600    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
      Credit Cards — continued  
    4,000,000     Discover Card Master Trust I, Series 96-4, Class A, 1 mo. LIBOR + .38%,
0.65%, due 10/16/13		     3,932,400    
    4,100,000     Discover Card Master Trust I, Series 05-4, Class A1, 1 mo. LIBOR + .06%,
0.33%, due 06/18/13		     4,042,354    
    3,900,000     Discover Card Master Trust I, Series 05-4, Class A2, 1 mo. LIBOR + .09%,
0.36%, due 06/16/15		     3,550,219    
    2,700,000     Discover Card Master Trust I, Series 06-2, Class A2, 1 mo. LIBOR + .03%,
0.30%, due 01/16/14		     2,640,001    
    5,700,000     GE Capital Credit Card Master Note Trust, Series 05-1, Class A,
1 mo. LIBOR + .04%, 0.31%, due 03/15/13		     5,673,267    
    4,400,000     GE Capital Credit Card Master Note Trust, Series 07-3, Class A1,
1 mo. LIBOR + .01%, 0.28%, due 06/15/13		     4,347,200    
    10,600,000     Household Credit Card Master Note Trust I, Series 07-1, Class A,
1 mo. LIBOR + .05%, 0.32%, due 04/15/13		     10,434,375    
    4,600,000     Household Credit Card Master Note Trust I, Series 07-2, Class A,
1 mo. LIBOR + .55%, 0.82%, due 07/15/13		     4,508,000    
    14,300,000     HSBC Private Label Credit Card Master Note, Series 07-1, Class A,
1 mo. LIBOR + .02%, 0.29%, due 12/16/13		     14,014,000    
    4,200,000     National City Credit Card Master Trust, Series 08-3, Class A,
1 mo. LIBOR + 1.80%, 2.07%, due 05/15/13		     4,074,000    
    900,000     World Financial Network Credit Card Master Trust, Series 06-A, Class A,
144A, 1 mo. LIBOR + .13%, 0.40%, due 02/15/17		     810,846    
    Total Credit Cards     114,402,142    
        Equipment Leases — 1.0%  
    1,958,399     CNH Equipment Trust, Series 07-B, Class A3B, 1 mo. LIBOR + .60%,
0.87%, due 10/17/11		     1,959,104    
    6,652,287     GE Equipment Midticket LLC, Series 07-1, Class A3B, 1 mo. LIBOR + .25%,
0.52%, due 06/14/11		     6,627,341    
    Total Equipment Leases     8,586,445    
        Insurance Premiums — 0.9%  
    8,000,000     AICCO Premium Finance Master Trust, Series 07-AA, Class A, 144A,
1 mo. LIBOR + .05%, 0.32%, due 12/15/11		     7,684,800    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
      Insured Auto Financing — 8.1%  
    4,700,000     Aesop Funding II LLC, Series 05-1A, Class A3, 144A, MBIA,
1 mo. LIBOR + .12%, 0.39%, due 04/20/11		     4,602,992    
    6,000,000     Aesop Funding II LLC, Series 06-1A, Class A, 144A, MBIA,
1 mo. LIBOR + .22%, 0.49%, due 03/20/12		     5,587,080    
    2,494,536     AmeriCredit Automobile Receivables Trust, Series 05-BM, Class A4, MBIA,
1 mo. LIBOR + .08%, 0.36%, due 05/06/12		     2,464,951    
    2,900,000     AmeriCredit Automobile Receivables Trust, Series 07-AX, Class A4, XL,
1 mo. LIBOR + .04%, 0.32%, due 10/06/13		     2,784,870    
    4,627,934     AmeriCredit Automobile Receivables Trust, Series 07-CM, Class A3B, MBIA,
1 mo. LIBOR + .03%, 0.31%, due 05/07/12		     4,516,683    
    2,700,000     AmeriCredit Automobile Receivables Trust, Series 07-DF, Class A4B, FSA,
1 mo. LIBOR + .80%, 1.08%, due 06/06/14		     2,343,975    
    6,000,000     AmeriCredit Prime Automobile Receivable Trust, Series 07-2M, Class A4B,
MBIA, 1 mo. LIBOR + .50%, 0.78%, due 03/08/16		     5,438,328    
    5,282,948     Capital One Auto Finance Trust, Series 06-B, Class A4, MBIA,
1 mo. LIBOR + .02%, 0.29%, due 07/15/13		     5,136,399    
    9,700,000     Capital One Auto Finance Trust, Series 07-A, Class A4, AMBAC,
1 mo. LIBOR + .02%, 0.29%, due 11/15/13		     9,205,319    
    1,192,709     Capital One Auto Finance Trust, Series 07-C, Class A3B, FGIC,
1 mo. LIBOR + .51%, 0.78%, due 04/16/12		     1,179,398    
    1,800,000     Hertz Vehicle Financing LLC, Series 05-2A, Class A5, 144A, AMBAC,
1 mo. LIBOR + .25%, 0.52%, due 11/25/11		     1,709,856    
    11,000,000     Santander Drive Auto Receivables Trust, Series 07-3, Class A4B, FGIC,
1 mo. LIBOR + .65%, 0.92%, due 10/15/14		     10,237,700    
    11,000,000     Triad Auto Receivables Owner Trust, Series 07-B, Class A4B, FSA,
1 mo. LIBOR + 1.20%, 1.48%, due 07/14/14		     10,010,000    
    2,070,420     UPFC Auto Receivables Trust, Series 06-B, Class A3, AMBAC, 5.01%,
due 08/15/12		     2,069,447    
    Total Insured Auto Financing     67,286,998    
      Insured Other — 1.6%  
    5,000,000     DB Master Finance LLC, Series 06-1, Class A2, 144A, AMBAC, 5.78%,
due 06/20/31		     4,621,505    
    3,630,062     Henderson Receivables LLC, Series 06-3A, Class A1, 144A, MBIA,
1 mo. LIBOR + .20%, 0.47%, due 09/15/41		     2,744,072    
    2,847,241     Henderson Receivables LLC, Series 06-4A, Class A1, 144A, MBIA,
1 mo. LIBOR + .20%, 0.47%, due 12/15/41		     2,167,662    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
      Insured Other — continued  
    3,457,564     TIB Card Receivables Fund, 144A, FGIC, 3 mo. LIBOR + .25%, 0.83%,
due 01/05/14		     3,111,808    
    9,200,000     Toll Road Investment Part II, Series C, 144A, MBIA, Zero Coupon,
due 02/15/37		     869,308    
    Total Insured Other     13,514,355    
      Insured Residential Asset-Backed Securities (United States) — 0.5%  
    9,833,997     Ameriquest Mortgage Securities, Inc., Series 04-R6, Class A1, XL,
1 mo. LIBOR + .21%, 0.48%, due 07/25/34		     4,326,959    
      Insured Residential Mortgage-Backed Securities (United States) — 0.1%  
    1,239,547     SBI Heloc Trust, Series 05-HE1, Class 1A, 144A, FSA,
1 mo. LIBOR + .19%, 0.46%, due 11/25/35		     593,191    
      Insured Time Share — 0.5%  
    865,390     Cendant Timeshare Receivables Funding LLC, Series 05-1A, Class A2,
144A, FGIC, 1 mo. LIBOR + .18%, 0.45%, due 05/20/17		     787,505    
    554,899     Sierra Receivables Funding Co., Series 06-1A, Class A2, 144A, MBIA,
1 mo. LIBOR + .15%, 0.42%, due 05/20/18		     455,149    
    4,114,483     Sierra Receivables Funding Co., Series 07-2A, Class A2, 144A, MBIA,
1 mo. LIBOR + 1.00%, 1.27%, due 09/20/19		     2,551,885    
    Total Insured Time Share     3,794,539    
      Insured Transportation — 0.5%  
    5,273,133     CLI Funding LLC, Series 06-1A, Class A, 144A, AMBAC,
1 mo. LIBOR + .18%, 0.45%, due 08/18/21		     3,717,559    
      Investment Grade Corporate Collateralized Debt Obligations — 3.1%  
    4,000,000     Morgan Stanley ACES SPC, Series 04-15, Class II, 144A,
3 mo. LIBOR + .65%, 1.26%, due 12/20/09		     3,726,000    
    2,000,000     Morgan Stanley ACES SPC, Series 04-15, Class III, 144A,
3 mo. LIBOR + .75%, 1.36%, due 12/20/09		     1,815,000    
    2,000,000     Morgan Stanley ACES SPC, Series 05-2A, Class A, 144A,
3 mo. LIBOR + .45%, 1.06%, due 03/20/10		     1,818,000    
    2,000,000     Morgan Stanley ACES SPC, Series 05-10, Class A1, 144A,
3 mo. LIBOR + .52%, 1.13%, due 03/20/10		     1,753,000    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
      Investment Grade Corporate Collateralized Debt Obligations — continued  
    4,000,000     Morgan Stanley ACES SPC, Series 05-15, Class A, 144A,
3 mo. LIBOR + .40%, 1.01%, due 12/20/10		     3,366,000    
    4,800,000     Morgan Stanley ACES SPC, Series 06-13A, Class A, 144A,
3 mo. LIBOR + .29%, 0.90%, due 06/20/13		     2,613,600    
    9,000,000     Prism Orso Trust, Series 04-MAPL, Class CERT, 144A,
3 mo. LIBOR + .70%, 1.41%, due 08/01/11		     7,651,800    
    4,500,000     Salisbury International Investments Ltd., 3 mo. LIBOR + .42%, 1.03%,
due 06/22/10		     3,231,000    
    Total Investment Grade Corporate Collateralized Debt Obligations     25,974,400    
      Residential Asset-Backed Securities (United States) — 10.5%  
    2,087,338     Accredited Mortgage Loan Trust, Series 07-1, Class A1,
1 mo. LIBOR + .05%, 0.32%, due 02/25/37		     1,979,832    
    357,673     ACE Securities Corp., Series 05-ASP1, Class A2C, 1 mo. LIBOR + .27%,
0.54%, due 09/25/35		     345,154    
    278,249     ACE Securities Corp., Series 05-SDI, Class A1, 1 mo. LIBOR + .40%,
0.67%, due 11/25/50		     236,512    
    9,400,000     ACE Securities Corp., Series 06-ASP5, Class A2C, 1 mo. LIBOR + .18%,
0.45%, due 10/25/36		     2,444,000    
    4,390,734     ACE Securities Corp., Series 06-CW1, Class A2B, 1 mo. LIBOR + .10%,
0.37%, due 07/25/36		     3,293,050    
    11,900,000     ACE Securities Corp., Series 06-HE2, Class A2C, 1 mo. LIBOR + .16%,
0.43%, due 05/25/36		     3,927,000    
    1,618,249     ACE Securities Corp., Series 06-HE3, Class A2B, 1 mo. LIBOR + .09%,
0.36%, due 06/25/36		     1,213,687    
    903,808     ACE Securities Corp., Series 06-SL1, Class A, 1 mo. LIBOR + .16%,
0.43%, due 09/25/35		     111,846    
    2,282,387     ACE Securities Corp., Series 06-SL3, Class A2, 1 mo. LIBOR + .17%,
0.44%, due 06/25/36		     39,942    
    2,099,224     ACE Securities Corp., Series 06-SL3, Class A1, 1 mo. LIBOR + .10%,
0.37%, due 06/25/36		     68,225    
    1,257,221     ACE Securities Corp., Series 06-SL4, Class A1, 1 mo. LIBOR + .12%,
0.39%, due 09/25/36		     141,752    
    2,373,663     ACE Securities Corp., Series 07-WM1, Class A2A, 1 mo. LIBOR + .07%,
0.34%, due 11/25/36		     1,127,490    
    4,634,751     ACE Securities Corp., Series 07-ASL1, Class A2, 1 mo. LIBOR + .17%,
0.44%, due 12/25/36		     220,151    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
      Residential Asset-Backed Securities (United States) — continued  
    2,347,282     Argent Securities, Inc., Series 06-W2, Class A2B, 1 mo. LIBOR + .19%,
0.46%, due 03/25/36		     1,455,315    
    11,400,000     Argent Securities, Inc., Series 06-M1, Class A2C, 1 mo. LIBOR + .15%,
0.42%, due 07/25/36		     2,693,250    
    2,300,000     Argent Securities, Inc., Series 06-W5, Class A2C, 1 mo. LIBOR + .15%,
0.42%, due 06/25/36		     763,672    
    8,326,236     Argent Securities, Inc., Series 06-M2, Class A2B, 1 mo. LIBOR + .11%,
0.38%, due 09/25/36		     4,995,742    
    7,062,835     Asset Backed Funding Certificates, Series 07-NC1, Class A1, 144A,
1 mo. LIBOR + .22%, 0.49%, due 05/25/37		     5,071,822    
    2,600,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3B,
1 mo. LIBOR + .11%, 0.38%, due 10/25/36		     2,427,360    
    2,700,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3C,
1 mo. LIBOR + .15%, 0.42%, due 10/25/36		     1,072,710    
    113,451     Asset Backed Funding Certificates, Series 06-OPT3, Class A3A,
1 mo. LIBOR + .06%, 0.33%, due 11/25/36		     110,047    
    4,223,310     Bayview Financial Acquisition Trust, Series 05-A, Class A1, 144A,
1 mo. LIBOR + .50%, 1.26%, due 02/28/40		     2,049,995    
    3,184,310     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A1,
1 mo. LIBOR + .11%, 0.38%, due 11/25/36		     2,224,364    
    5,400,000     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A2,
1 mo. LIBOR + .20%, 0.47%, due 11/25/36		     1,075,080    
    2,114,687     Bear Stearns Mortgage Funding Trust, Series 07-SL2, Class 1A,
1 mo. LIBOR + .16%, 0.43%, due 02/25/37		     193,251    
    2,600,000     Centex Home Equity, Series 06-A, Class AV3, 1 mo. LIBOR + .16%,
0.43%, due 06/25/36		     1,820,000    
    6,600,000     Citigroup Mortgage Loan Trust, Inc., Series 06-WFH4, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 11/25/36		     2,640,000    
    2,600,000     Citigroup Mortgage Loan Trust, Inc., Series 06-HE3, Class A2C,
1 mo. LIBOR + .16%, 0.43%, due 12/25/36		     806,000    
    8,112,000     Countrywide Asset-Backed Certificates, Series 06-BC3, Class 2A2,
1 mo. LIBOR + .14%, 0.41%, due 02/25/37		     4,429,963    
    2,175,177     Countrywide Asset-Backed Certificates, Series 06-BC5, Class 2A1,
1 mo. LIBOR + .08%, 0.35%, due 03/25/37		     2,031,398    
    645,573     Credit-Based Asset Servicing & Securitization, Series 06-RP1, Class A1,
144A, 1 mo. LIBOR + .11%, 0.38%, due 04/25/36		     595,339    
    4,400,000     Fremont Home Loan Trust, Series 06-B, Class 2A3, 1 mo. LIBOR + .16%,
0.43%, due 08/25/36		     1,258,400    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
      Residential Asset-Backed Securities (United States) — continued  
    1,344,976     Household Home Equity Loan Trust, Series 05-2, Class A2,
1 mo. LIBOR + .31%, 0.58%, due 01/20/35		     1,044,038    
    508,208     Household Home Equity Loan Trust, Series 05-3, Class A2,
1 mo. LIBOR + .29%, 0.56%, due 01/20/35		     386,874    
    6,800,000     J.P. Morgan Mortgage Acquisition Corp., Series 06-WMC4, Class A3,
1 mo. LIBOR + .12%, 0.39%, due 12/25/36		     1,948,091    
    4,400,000     Master Asset-Backed Securities Trust, Series 06-FRE2, Class A4,
1 mo. LIBOR + .15%, 0.42%, due 03/25/36		     1,558,524    
    3,100,000     Master Asset-Backed Securities Trust, Series 06-NC3, Class A4,
1 mo. LIBOR + .16%, 0.43%, due 10/25/36		     893,823    
    535,288     Master Asset-Backed Securities Trust, Series 05-FRE1, Class A4,
1 mo. LIBOR + .25%, 0.52%, due 10/25/35		     466,369    
    2,700,000     Master Asset-Backed Securities Trust, Series 06-HE2, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 06/25/36		     785,646    
    6,160,000     Master Asset-Backed Securities Trust, Series 06-HE3, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 08/25/36		     1,869,129    
    1,380,184     Master Second Lien Trust, Series 06-1, Class A, 1 mo. LIBOR + .16%,
0.43%, due 03/25/36		     44,856    
    2,957,726     Merrill Lynch Mortgage Trust, Series 06-SD1, Class A, 1 mo. LIBOR + .28%,
0.55%, due 01/25/47		     1,827,579    
    2,300,000     Morgan Stanley IXIS Real Estate Capital Trust, Series 06-2, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 11/25/36		     621,000    
    8,800,000     Nationstar Home Equity Loan Trust, Series 06-B, Class AV3,
1 mo. LIBOR + .17%, 0.44%, due 09/25/36		     2,378,750    
    9,100,000     Nomura Home Equity Loan, Inc., Series 06-HE3, Class 2A3,
1 mo. LIBOR + .15%, 0.42%, due 07/25/36		     2,533,781    
    2,156,362     People's Choice Home Loan Securities Trust, Series 05-4, Class 1A2,
1 mo. LIBOR + .26%, 0.53%, due 12/25/35		     1,409,004    
    201,616     Residential Asset Mortgage Products, Inc., Series 05-RS4, Class A3,
1 mo. LIBOR + .23%, 0.50%, due 04/25/35		     191,535    
    6,500,000     Saxon Asset Securities Trust, Series 06-3, Class A2, 1 mo. LIBOR + .11%,
0.38%, due 10/25/46		     5,265,000    
    9,100,000     Securitized Asset-Backed Receivables LLC Trust, Series 06-HE1, Class A2C,
1 mo. LIBOR + .16%, 0.43%, due 07/25/36		     2,702,700    
    2,039,533     Security National Mortgage Loan Trust, Series 06-2A, Class A1, 144A,
1 mo. LIBOR + .29%, 0.56%, due 10/25/36		     1,709,128    
    571,796     SG Mortgage Securities Trust, Series 05-OPT1, Class A2,
1 mo. LIBOR + .26%, 0.53%, due 10/25/35		     517,943    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
      Residential Asset-Backed Securities (United States) — continued  
    3,896,466     Soundview Home Equity Loan Trust, Series 07-NS1, Class A1,
1 mo. LIBOR + .12%, 0.39%, due 01/25/37		     3,196,320    
    3,600,000     Specialty Underwriting & Residential Finance, Series 06-BC3, Class A2C,
1 mo. LIBOR + .15%, 0.42%, due 06/25/37		     1,028,160    
    2,299,645     Structured Asset Investment Loan Trust, Series 06-1, Class A3,
1 mo. LIBOR + .20%, 0.47%, due 01/25/36		     1,333,794    
    1,003,002     Structured Asset Securities Corp., Series 05-S6, Class A2,
1 mo. LIBOR + .29%, 0.56%, due 11/25/35		     210,630    
    Total Residential Asset-Backed Securities (United States)     86,785,023    
      Residential Mortgage-Backed Securities (Australian) — 2.0%  
    707,405     Australian Mortgage Securities II, Series G3, Class A1A,
3 mo. LIBOR + .21%, 0.74%, due 01/10/35		     618,980    
    2,627,562     Crusade Global Trust, Series 06-1, Class A1, 144A, 3 mo. LIBOR + .06%,
0.57%, due 07/20/38		     2,450,837    
    7,048,164     Interstar Millennium Trust, Series 04-2G, Class A, 3 mo. LIBOR + .20%,
1.03%, due 03/14/36		     5,686,599    
    2,997,318     Interstar Millennium Trust, Series 05-1G, Class A, 3 mo. LIBOR + .12%,
0.75%, due 12/08/36		     2,462,747    
    1,574,486     Medallion Trust, Series 05-1G, Class A1, 3 mo. LIBOR + .08%, 0.54%,
due 05/10/36		     1,480,322    
    4,253,400     Puma Finance Ltd., Series G5, Class A1, 144A, 3 mo. LIBOR + .07%, 0.49%,
due 02/21/38		     3,402,720    
    Total Residential Mortgage-Backed Securities (Australian)     16,102,205    
      Residential Mortgage-Backed Securities (European) — 3.9%  
    8,008,343     Aire Valley Mortgages, Series 06-1A, Class 1A, 144A, 3 mo. LIBOR + .11%,
0.72%, due 09/20/66		     4,004,171    
    5,700,000     Brunel Residential Mortgages, Series 07-1A, Class A4C, 144A,
3 mo. LIBOR + .10%, 0.61%, due 01/13/39		     5,003,531    
    719,880     Gracechurch Mortgage Funding Plc, Series 1A, Class A2B, 144A,
3 mo. LIBOR + .07%, 0.58%, due 10/11/41		     679,286    
    4,242,152     Granite Master Issuer Plc, Series 06-3, Class A3, 1 mo. LIBOR + .04%,
0.31%, due 12/20/54		     2,693,767    
    8,324,053     Kildare Securities Ltd., Series 07-1A, Class A2, 144A, 3 mo. LIBOR + .06%,
0.71%, due 12/10/43		     7,293,119    
    933,975     Leek Finance Plc, Series 15A, Class AB, 144A, 3 mo. LIBOR + .14%, 0.75%,
due 03/21/37		     822,336    

 

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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
      Residential Mortgage-Backed Securities (European) — continued  
    3,108,780     Leek Finance Plc, Series 16A, Class A2B, 144A, 3 mo. LIBOR + .16%,
0.77%, due 09/21/37		     2,294,569    
    2,973,783     Paragon Mortgages Plc, Series 12A, Class A2C, 144A, 3 mo. LIBOR + .11%,
0.55%, due 11/15/38		     1,669,184    
    2,702,689     Paragon Mortgages Plc, Series 14A, Class A2C, 144A, 3 mo. LIBOR + .10%,
0.73%, due 09/15/39		     1,399,236    
    2,700,000     Permanent Master Issuer Plc, Series 06-1, Class 5A, 3 mo. LIBOR + .11%,
0.62%, due 07/15/33		     2,146,500    
    4,500,000     Permanent Master Issuer Plc, Series 07-1, Class 4A, 3 mo. LIBOR + .08%,
0.59%, due 10/15/33		     3,940,020    
    Total Residential Mortgage-Backed Securities (European)     31,945,719    
      Residential Mortgage-Backed Securities (United States) — 0.0%  
    410,158     GreenPoint Mortgage Funding Trust, Series 05-HE4, Class 2A3C,
1 mo. LIBOR + .25%, 0.52%, due 07/25/30		     354,595    
      Student Loans — 2.0%  
    3,100,000     College Loan Corp. Trust, Series 07-2, Class A1, 3 mo. LIBOR + .25%,
0.75%, due 01/25/24		     3,089,344    
    5,180,000     College Loan Corp. Trust, Series 07-1, Class A1, 3 mo. LIBOR + .01%,
0.51%, due 01/25/23		     5,147,625    
    718,732     Goal Capital Funding Trust, Series 06-1, Class A1, 3 mo. LIBOR, 0.39%,
due 08/25/20		     713,069    
    104,185     Keycorp Student Loan Trust, Series 05-A, Class 2A1, 3 mo. LIBOR + .05%,
0.65%, due 09/27/21		     103,830    
    979,148     Montana Higher Education Student Assistance Corp., Series 05-1, Class A,
3 mo. LIBOR + .04%, 0.65%, due 06/20/15		     973,077    
    4,917,839     National Collegiate Student Loan Trust, Series 05-2, Class A2,
1 mo. LIBOR + .15%, 0.42%, due 02/25/26		     4,621,047    
    573,352     National Collegiate Student Loan Trust, Series 06-1, Class A2,
1 mo. LIBOR + .14%, 0.41%, due 08/25/23		     530,356    
    1,249,220     National Collegiate Student Loan Trust, Series 06-A, Class A1, 144A,
1 mo. LIBOR + .08%, 0.35%, due 08/26/19		     1,214,867    
    Total Student Loans     16,393,215    
    Total Asset-Backed Securities     571,238,337    

 

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, 2009 (Unaudited)

Par Value ($) /
Principal Amount /
Contracts		   Description   Value ($)  
      Foreign Government Obligations — 5.0%  
GBP     25,000,000     U.K. Treasury Bond, 4.25%, due 12/07/46 (a)      41,761,020    
      U.S. Government — 19.2%  
    126,060,080     U.S. Treasury Inflation Indexed Bond, 0.88%, due 04/15/10 (b) (c) (d)      125,863,174    
    55,000,000     U.S. Treasury Principal Strip Bond, due 11/15/21 (a)      32,930,205    
    Total U.S. Government     158,793,379    
      U.S. Government Agency — 0.1%  
    800,000     U.S. Department of Transportation, 144A, 6.00%, due 12/07/21     772,280    
    TOTAL DEBT OBLIGATIONS (COST $957,071,084)     772,565,016    
        OPTIONS PURCHASED — 12.8%  
        Currency Options — 4.4%  
AUD     35,000,000     AUD Put/NZD Call, Expires 06/08/10, Strike 1.26     1,510,753    
USD     700,000,000     USD Call/JPY Put, Expires 09/05/13, Strike 119.00     7,803,600    
USD     700,000,000     USD Call/JPY Put, Expires 09/05/13, Strike 119.00     7,803,600    
USD     700,000,000     USD Call/JPY Put, Expires 09/10/13, Strike 119.00     7,821,800    
USD     700,000,000     USD Call/JPY Put, Expires 09/12/13, Strike 119.00     7,812,700    
USD     350,000,000     USD Call/JPY Put, Expires 09/24/13, Strike 119.00     3,919,300    
    Total Currency Options     36,671,753    
        Options on Futures — 0.1%  
USD     3,000     Euro Dollar Future Option Put, Expires 12/14/09, Strike 98.00     56,250    
USD     3,000     Euro Dollar Future Option Put, Expires 12/14/09, Strike 99.00     243,750    
    Total Options on Futures     300,000    
        Options on Interest Rate Swaps — 7.0%  
AUD     500,000,000     AUD Swaption Call, Expires 07/29/10, Strike 5.00%     1,029,876    
CAD     100,000,000     CAD Swaption Call, Expires 12/14/09, Strike 1.12%     235,579    
CAD     100,000,000     CAD Swaption Call, Expires 05/20/10, Strike 2.01%     399,452    
EUR     150,000,000     EUR Swaption Call, Expires 02/22/10, Strike 3.95%     5,119,670    

 

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, 2009 (Unaudited)

Principal Amount /
Contracts		   Description   Value ($)  
        Options on Interest Rate Swaps — continued  
EUR     500,000,000     EUR Swaption Call, Expires 02/23/10, Strike 1.00%     139,776    
EUR     500,000,000     EUR Swaption Call, Expires 07/08/10, Strike 2.25%     2,506,648    
EUR     600,000,000     EUR Swaption Call, Expires 02/03/11, Strike 3.39%     10,290,949    
GBP     500,000,000     GBP Swaption Call, Expires 10/12/09, Strike 1.20%     1,176,195    
GBP     500,000,000     GBP Swaption Call, Expires 10/12/09, Strike 1.70%     4,795,130    
GBP     500,000,000     GBP Swaption Call, Expires 07/01/10, Strike 2.50%     4,059,297    
GBP     14,000,000     GBP Swaption Put, Expires 02/28/11, Strike 5.17%     334,257    
GBP     14,000,000     GBP Swaption Call, Expires 02/28/11, Strike 5.17%     1,529,070    
GBP     14,000,000     GBP Swaption Put, Expires 03/03/11, Strike 5.03%     400,785    
GBP     14,000,000     GBP Swaption Call, Expires 03/03/11, Strike 5.03%     1,341,657    
GBP     28,000,000     GBP Swaption Put, Expires 03/14/11, Strike 4.96%     893,237    
GBP     28,000,000     GBP Swaption Call, Expires 03/14/11, Strike 4.96%     2,494,373    
GBP     35,000,000     GBP Swaption Put, Expires 03/21/11, Strike 4.92%     1,193,353    
GBP     35,000,000     GBP Swaption Call, Expires 03/21/11, Strike 4.92%     2,973,526    
SEK     500,000,000     SEK Swaption Call, Expires 05/13/10, Strike 2.61%     430,501    
SEK     500,000,000     SEK Swaption Call, Expires 05/17/10, Strike 2.55%     387,725    
USD     1,000,000,000     USD Swaption Call, Expires 09/10/09, Strike 1.15%     4,931,000    
USD     64,000,000     USD Swaption Straddle, Expires 05/01/18, Strike TBD     3,576,960    
USD     64,000,000     USD Swaption Straddle, Expires 04/23/18, Strike TBD     3,587,264    
USD     64,000,000     USD Swaption Straddle, Expires 04/10/18, Strike TBD     3,598,656    
    Total Options on Interest Rate Swaps     57,424,936    
        Options on Interest Rates — 1.3%  
GBP     150,000,000     Floor on 3 Month GBP LIBOR, Expires 09/13/09, Strike 6.40%     3,099,049    
GBP     150,000,000     Floor on 3 Month GBP LIBOR, Expires 09/13/09, Strike 5.40%     2,497,114    
GBP     700,000,000     Floor on 3 Month GBP LIBOR, Expires 06/08/11, Strike 2.00%     5,432,311    
USD     300,000,000     USD 3 Month LIBOR Cap Call, Expires 04/15/10, Strike 2.64%     —    
    Total Options on Interest Rates     11,028,474    
    TOTAL OPTIONS PURCHASED (COST $60,222,695)     105,425,163    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 8.3%  
        Money Market Funds — 8.3%  
    40,575,995     State Street Institutional Liquid Reserves Fund-Institutional Class     40,575,995    
    28,277,588     State Street Institutional Treasury Plus Money Market Fund-Institutional Class     28,277,588    
    TOTAL SHORT-TERM INVESTMENTS (COST $68,853,583)     68,853,583    
        TOTAL INVESTMENTS — 114.5%
(Cost $1,086,147,362)		     946,843,762    
        Other Assets and Liabilities (net) — (14.5%)     (119,803,097 )  
    TOTAL NET ASSETS — 100.0%   $ 827,040,665    

 

See accompanying notes to the financial statements.


15


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Written Options

A summary of open written option contracts of the Fund at August 31, 2009 is as follows:

    Notional
Amount/
Contracts		   Expiration
Date		       Description   Premiums   Market
Value		  
Call     500,000,000     7/29/2010   AUD   Interest Rate Swaption,            
   
                    Strike 4.00%   $ (330,292 )   $ (166,082 )  
Call     200,000,000     12/14/2009   CAD   Interest Rate Swaption,
Strike 0.60%		     (71,588 )     (28,134 )  
Call     500,000,000     7/8/2010   EUR   Interest Rate Swaption,
Strike 1.75%		     (907,400 )     (634,368 )  
Call     600,000,000     2/3/2011   EUR   Interest Rate Swaption,
Strike 2.39%		     (1,787,928 )     (2,843,688 )  
Call     1,000,000,000     10/12/2009   GBP   Interest Rate Swaption,
Strike 1.45%		     (663,400 )     (5,702,713 )  
Call     500,000,000     7/1/2010   GBP   Interest Rate Swaption,
Strike 2.00%		     (1,155,910 )     (1,960,867 )  
Put     1,400,000,000     6/8/2011   GBP   Floor on 3 Month GBP LIBOR,
Strike 1.00%		     (449,806 )     (1,891,679 )  
Call     300,000,000     9/13/2009   GBP   Floor on 3 Month GBP LIBOR,
Strike 5.90%		     (1,167,900 )     (5,596,408 )  
Call     1,000,000,000     9/10/2009   USD   Interest Rate Swaption,
Strike 0.90%		     (400,000 )     (2,451,000 )  
Call     55,000,000     10/3/2011   USD   Interest Rate Swaption,
Strike 4.88%		     (3,025,000 )     (4,668,510 )  
Put     120,000,000     10/3/2011   USD   Interest Rate Swaption,
Strike 4.88%		     (6,600,000 )     (5,686,440 )  
Put     6,000     12/14/2009   USD   Euro Dollar Future Option Put,
Strike 98.50		     (813,000 )     (225,000 )  
Call     175,000,000     2/9/2010   USD   USD Call/JPY Put,
Strike 102.25		     (2,485,000 )     (1,073,625 )  
    $ (19,857,224 )   $ (32,928,514 )  

 

See accompanying notes to the financial statements.


16


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  13,000,000     USD   9/20/2010   Morgan Stanley   Receive     0.40 %     4.08 %   Eagle     13,000,000     USD   $ (505,180 )  
                                        Creek                
   
                                        CDO                      
  50,000,000     USD       12/20/2012   Morgan Stanley   (Pay)     1.93%       2.50 %   Reference
security
within
CDX
index 		    NA           679,995    
  97,228,457     USD   12/20/2012   Morgan Stanley   Receive     0.71 %     0.30 %   Reference
security
within
CDX
index		     97,228,457     USD     1,440,368    
  252,793,989     USD   12/20/2012   Morgan Stanley   Receive     0.71 %     0.30 %   Reference
security
within
CDX
Index		     252,793,989     USD     3,744,957    
  100,000,000     USD       12/20/2012   Morgan Stanley   (Pay)     1.20%       0.65 %   Reference
security
within
CDX
Index 		    NA           (2,010,533 )  
  7,000,000     USD   3/20/2013   Morgan Stanley   Receive     0.25 %     6.22 %   MS
Synthetic
2006-1		     7,000,000     USD     (1,341,116 )  
    $ 2,008,491    
    Premiums to (Pay) Receive   $ —    

 

^  Receive - Fund receives premium and sells credit protection.
(Pay) - Fund pays premium and buys credit protection.

See accompanying notes to the financial statements.


17


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

(1)  Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on the reference security, as of August 31, 2009, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider (i.e. higher) credit spreads represent a deterioration of the referenced entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(2)  The maximum potential amount the Fund could be required to make as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)#		   Fixed
Rate		   Variable Rate   Market
Value		  
  182,000,000     USD   5/26/2014   Barclays Bank PLC   (Pay)     2.59 %   3 month LIBOR   $ 686,742    
  182,000,000     USD   5/29/2014   Citigroup   (Pay)     2.80 %   3 month LIBOR     (1,069,195 )  
  119,000,000     USD   5/26/2019   JP Morgan Chase Bank   Receive     3.45 %   3 month LIBOR     (1,319,618 )  
  100,000,000     USD   5/26/2019   Barclays Bank PLC   Receive     3.46 %   3 month LIBOR     (1,056,526 )  
  119,000,000     USD   5/29/2019   Morgan Stanley   Receive     3.73 %   3 month LIBOR     1,444,031    
  100,000,000     USD   5/29/2019   Citigroup   Receive     3.74 %   3 month LIBOR     1,255,431    
  55,000,000     USD   11/15/2021   JP Morgan Chase Bank   (Pay)     0.00 %   3 month LIBOR     (7,341,419 )  
  65,000,000     USD   5/15/2022   JP Morgan Chase Bank   (Pay)     0.00 %   3 month LIBOR     (4,078,199 )  
  105,000,000     USD   8/15/2022   JP Morgan Chase Bank   (Pay)     0.00 %   3 month LIBOR     (6,485,010 )  
  76,500,000     AUD   4/16/2023   Deutsche Bank AG   Receive     6.36 %   6 month AUD BBSW     388,420    
  41,100,000     AUD   4/17/2038   Deutsche Bank AG   (Pay)     4.34 %   6 month AUD BBSW     1,103,577    
  57,000,000     USD   5/26/2039   JP Morgan Chase Bank   (Pay)     3.95 %   3 month LIBOR     1,269,429    
  57,000,000     USD   5/29/2039   Morgan Stanley   (Pay)     4.21 %   3 month LIBOR     (1,283,583 )  
  25,000,000     GBP   12/7/2046   Merrill Lynch   (Pay)     4.36 %   6 month GBP LIBOR     (2,992,492 )  
    $ (19,478,412 )  
    Accretion since inception for zero coupon interest rate swaps   $ 5,953,010    

 

#  Receive - Fund receives fixed rate and pays variable rate.
(Pay) - Fund pays fixed rate and receives variable rate.

See accompanying notes to the financial statements.


18


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Fund
Pays		   Fund Receives   Market
Value		  
  65,000,000     USD   9/11/2009   JP Morgan     1.00 %   Return on Treasury  
 
            Chase Bank       Coupon STRIP   $ (691,678 )  
  105,000,000     USD   9/11/2009   JP Morgan
Chase Bank		     1.00 %   Return on Treasury
Coupon STRIP		     (1,241,902 )  
    $ (1,933,580 )  
    Premiums to (Pay) Receive   $ —    

 

Reverse Repurchase Agreements

Face Value   Description   Market Value  
USD 4,885,000     Goldman Sachs, 1.27%, dated 08/13/09, to be repurchased on
demand at face value plus accrued interest.		   $ (4,888,102 )  
USD 5,385,000     Goldman Sachs, 1.27%, dated 08/13/09, to be repurchased on
demand at face value plus accrued interest.		     (5,388,420 )  
GBP 25,447,500     Barclays Bank PLC, 0.55%, dated 08/18/09, to be repurchased on
demand at face value plus accrued interest.		     (41,431,727 )  
USD 31,625,000     Barclays Bank PLC, 0.40%, dated 08/21/09, to be repurchased on
demand at face value plus accrued interest.		     (31,625,351 )  
    $ (83,333,600 )  

 

Average balance outstanding   $ (36,118,284 )  
Average interest rate     1.27 %  
Maximum balance outstanding   $ (42,011,250 )  
Average shares outstanding     42,728,625    
Average balance per share outstanding   $ (0.85 )  
Days outstanding     126    

 

Average balance outstanding was calculated based on daily balances outstanding during the period that the Fund has entered into reverse repurchase agreements.

See accompanying notes to the financial statements.


19


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, for the swap contracts held, the Fund had sufficient cash and/or securities to cover any commitments or collateral 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

CMBS - Commercial 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.

GBP LIBOR - London Interbank Offered Rate denominated in British Pounds.

LIBOR - London Interbank Offered Rate

MBIA - Insured as to the payment of principal and interest by MBIA Insurance Corp.

XL - Insured as to the payment of principal and interest by XL Capital Assurance.

The rates shown on variable rate notes are the current interest rates at August 31, 2009, which are subject to change based on the terms of the security.

(a)  All or a portion of this security has been pledged to cover collateral requirements on reverse repurchase agreements (Note 2).

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

(c)  All or a portion of this security has been segregated to cover collateral requirements on open swap contracts (Note 2).

(d)  All or a portion of this security has been segregated to cover collateral requirements on purchased options (Note 2).

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

EUR - Euro

GBP - British Pound

JPY - Japanese Yen

NZD - New Zealand Dollar

SEK - Swedish Krona

USD - United States Dollar

See accompanying notes to the financial statements.


20



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $1,086,147,362) (Note 2)   $ 946,843,762    
Cash     19,637,098    
Foreign currency, at value (cost $9,220) (Note 2)     9,368    
Interest receivable     1,276,874    
Interest receivable for open swap contracts     4,412,451    
Receivable for open swap contracts (Note 2)     12,012,950    
Receivable for expenses reimbursed by Manager (Note 3)     18,383    
Total assets     984,210,886    
Liabilities:  
Payable for investments purchased     9,187,567    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     1,639    
Payable for open swap contracts (Note 2)     31,416,451    
Payable for reverse repurchase agreements (Note 2)     83,333,600    
Written options outstanding, at value (premiums $19,857,224) (Note 2)     32,928,514    
Miscellaneous payable     146,504    
Accrued expenses     155,946    
Total liabilities     157,170,221    
Net assets   $ 827,040,665    
Shares outstanding:     42,728,625    
Net asset value per share:   $ 19.36    

 

See accompanying notes to the financial statements.


21


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Interest   $ 9,168,862    
Dividends     84,263    
Total investment income     9,253,125    
Expenses:  
Interest expense (Note 2)     157,761    
Custodian, fund accounting agent and transfer agent fees     55,476    
Audit and tax fees     50,784    
Legal fees     24,564    
Trustees fees and related expenses (Note 3)     8,165    
Miscellaneous     5,612    
Total expenses     302,362    
Fees and expenses reimbursed by Manager (Note 3)     (123,464 )  
Expense reductions (Note 2)     (617 )  
Net expenses     178,281    
Net investment income (loss)     9,074,844    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (39,673,380 )  
Closed futures contracts     1,532,181    
Closed swap contracts     7,679,920    
Written options     35,153,406    
Foreign currency, forward contracts and foreign currency related transactions     (3,125,561 )  
Net realized gain (loss)     1,566,566    
Change in net unrealized appreciation (depreciation) on:  
Investments     105,812,103    
Open swap contracts     627,578    
Written options     (2,946,944 )  
Foreign currency, forward contracts and foreign currency related transactions     701,150    
Net unrealized gain (loss)     104,193,887    
Net realized and unrealized gain (loss)     105,760,453    
Net increase (decrease) in net assets resulting from operations   $ 114,835,297    

 

See accompanying notes to the financial statements.


22


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 9,074,844     $ 38,279,698    
Net realized gain (loss)     1,566,566       (224,621,365 )  
Change in net unrealized appreciation (depreciation)     104,193,887       (160,835,159 )  
Net increase (decrease) in net assets from operations     114,835,297       (347,176,826 )  
Cash distributions to shareholders     (71,650,000 )     —    
Net share transactions (Note 7):     (6,624,317 )     (340,951,905 )  
Redemption fees (Notes 2 and 7):     —       432,682    
Total increase (decrease) in net assets resulting from
net share transactions and redemption fees		     (6,624,317 )     (340,519,223 )  
Total increase (decrease) in net assets     36,560,980       (687,696,049 )  
Net assets:  
Beginning of period     790,479,685       1,478,175,734    
End of period   $ 827,040,665     $ 790,479,685    

 

See accompanying notes to the financial statements.


23



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Financial Highlights
(For a share outstanding throughout each period)

    Six Months
Ended
August 31, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005(a)   
Net asset value,
beginning of period		   $ 18.35     $ 25.68     $ 25.99     $ 25.23     $ 25.17     $ 25.00    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.21       0.76       1.41       1.36       0.96       0.15    
Net realized and unrealized
gain (loss)		     2.48       (8.09 )     (1.72 )     (0.60 )     (0.90 )     0.02    
Total from investment
operations		     2.69       (7.33 )     (0.31 )     0.76       0.06       0.17    
Less distributions to shareholders:  
From cash distributions     (1.68 )     —       —       —       —       —    
Total distributions     (1.68 )     —       —       —       —       —    
Net asset value, end of period   $ 19.36     $ 18.35     $ 25.68     $ 25.99     $ 25.23     $ 25.17    
Total Return(b)      15.62 %**      (28.54 )%     (1.19 )%     3.01 %     0.24 %     0.68 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 827,041     $ 790,480     $ 1,478,176     $ 1,750,067     $ 1,012,277     $ 582,279    
Net operating expenses to
average daily net assets		     0.00 %(c)(d)*      0.00 %(c)      0.00 %(c)      0.00 %(c)      0.00 %(c)      0.01 %*   
Interest expense to average
daily net assets		     0.04 %*      —       0.07 %     0.00 %(c)      —       —    
Total net expenses to average
daily net assets		     0.04 %(d)*      0.00 %(c)      0.07 %     0.00 %(c)      0.00 %(c)      0.01 %*   
Net investment income to
average daily net assets		     2.28 %*      3.19 %     5.38 %     5.36 %     3.84 %     2.21 %*   
Portfolio turnover rate     15 %**      59 %     41 %     93 %     31 %     8 %**   
      0.03 %*      0.04 %     0.02 %     0.03 %     0.03 %     0.06 %*   
Redemption fees consisted of the
following per share amounts:		   $ 0.00 (e)    $ 0.01       —       —       —       —    

 

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

(c)  Ratio is less than 0.01%.

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

(e)  There were no redemption fees during the period.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


24



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO World Opportunity Overlay Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 J.P. Morgan 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 to seek to exploit misvaluations in world interest rates, currencies and credit markets, and to add value relative to the Fund's benchmark. The other component of the Fund's investment program involves direct investments, primarily in asset-backed securities and other adjustable rate fixed income securities. Derivative positions taken by the Fund are implemented primarily through interest rate swaps and/or futures contracts, currency forwards and/or options, and credit default swaps on single-issuers or indexes. The Fund has a substantial investment in asset-backed securities, including, but not limited to, securities backed by pools of residential and commercial mortgages, credit-card rec eivables, home equity loans, automobile loans, educational loans, corporate and sovereign bonds, and bank loans made to corporations. In addition, the Fund may invest in government securities, corporate debt securities, money market instruments, and commercial paper, and enter into credit default swaps, reverse repurchase agreements, and repurchase agreements. 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 also may invest in unaffiliated money market funds. Because of the deterioration in credit markets that became acute in October of 2008, the Fund currently holds and may continue to hold material positions of below investment grade securities.

From prior to March 1, 2009 through July 12, 2009, the Fund had a policy to effect redemptions of its shares in-kind above de minimis levels. The Fund had established de minimis amounts below which redemptions would be honored for cash. Beginning July 13, 2009, the Fund had a policy to pay redemption requests with cash (less a redemption fee).

As of the date of this report, shares of the Fund were not publicly offered and were principally available only to other series of the Trust and certain accredited investors.


25


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

Typically the Fund values debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fund. As of August 31, 200 9, the total value of securities held that were fair valued or for which no alternative pricing source was available represented 17.74% of the net assets of the Fund.


26


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund valued certain debt securities using indicative bids received from primary pricing sources. The Fund also utilizes third party valuation services (which use industry standard models and inputs from pricing vendors) to value credit default swaps.

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Debt Obligations  
Asset-Backed Securities   $ —     $ 71,589,208     $ 499,649,129     $ 571,238,337    
Foreign Government Obligations     —       41,761,020       —       41,761,020    
U.S. Government     —       158,793,379       —       158,793,379    
U.S. Government Agency     —       772,280       —       772,280    
TOTAL DEBT OBLIGATIONS     —       272,915,887       499,649,129       772,565,016    
Options Purchased     300,000       105,125,163       —       105,425,163    
Short-Term Investments     —       68,853,583       —       68,853,583    
Total Investments     300,000       446,894,633       499,649,129       946,843,762    
Derivatives  
Swap Agreements     —       6,147,630       5,865,320       12,012,950    
Total   $ 300,000     $ 453,042,263     $ 505,514,449     $ 958,856,712    

 


27


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical
Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Written Options   $ (225,000 )   $ (32,703,514 )   $ —     $ (32,928,514 )  
Swap Agreements     —       (27,559,622 )     (3,856,829 )     (31,416,451 )  
Total   $ (225,000 )   $ (60,263,136 )   $ (3,856,829 )   $ (64,344,965 )  

 

The aggregate net values of the Fund's direct investments in securities and other financial instruments using Level 3 inputs were 60.41% and 0.24% of total net assets, respectively.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Debt Obligations  
Asset-Backed Securities   $ 606,666,299     $ (114,677,006 )   $ 276,094     $ (3,921,177 )   $ 82,894,126     $ (71,589,208 )   $ 499,649,128    
Swaps     1,618,925       (196,994 )     —       196,994       389,566       —       2,008,491    
Total   $ 608,285,224     $ (114,874,000 )   $ 276,094     $ (3,724,183 )   $ 83,283,692     $ (71,589,208 )   $ 501,657,619    

 

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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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.


28


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Forward currency contracts

The Fund may enter into forward currency contracts, including forward cross currency contracts. A forward currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss associated with purchasing put and call options is limited to the premium paid. When purchasing options, the Fund and/or the purchased option counterparty may post or receive


29


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

cash or securities as collateral. Options contracts purchased by the Fund and outstanding at the end of the period are listed in the Fund's Schedule of Investments.

The Fund may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. Written options outstanding at the end of the period are listed in the Fund's Schedule of Investments.

For the period ended August 31, 2009, investment activity in options contracts written by the Fund was as follows:

    Puts   Calls  
    Principal
Amount
of Contracts		   Number
of
Contracts		   Premiums   Principal
Amount
of Contracts		   Number
of
Contracts		   Premiums  
Outstanding,
beginning of
period		   $ (420,000,000 )     —     $ (7,995,000 )   $ (1,435,000,000 )     —     $ (11,388,532 )  
Options written     (1,765,010,000 )     (16,000 )     (6,188,056 )     (5,620,000,000 )     (47,200 )     (44,255,343 )  
Options bought back     —       —       —       535,000,000       18,800       17,871,395    
Options expired     665,010,000       10,000       6,320,250       1,690,000,000       28,400       25,778,062    
Outstanding, end
of period		   $ (1,520,000,000 )     (6,000 )   $ (7,862,806 )   $ (4,830,000,000 )     —     $ (11,994,418 )  

 


30


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.


31


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's


32


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. As of August 31, 2009, the Fund had entered into reverse repurchase agreements, plus accrued interest, amounting to $83,333,600, selling securities with a market value, plus accrued interest, of $88,006,624. Reverse repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants at the end of the period.

Taxes

The Fund has elected to be treated as a partnership for U.S. federal income tax purposes. As a partnership, the Fund is not itself subject to federal income tax. Instead, each shareholder is required to take into account in determining its tax liability its distributive share of items of Fund income, gain, loss, deduction, credit, and tax preference for each taxable year substantially as though such items have been realized directly by the shareholder and without regard to whether any distribution by the Fund has been or will be received. Accordingly, no provision (benefit) for federal and state income taxes is reflected in the accompanying financial statements.

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 1,086,147,362     $ 58,697,593     $ (198,001,193 )   $ (139,303,600 )  

 

For the period ended August 31, 2009, the Fund had net realized loss attributed to redemption in-kind transactions of $3,278,412.

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or


33


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Distributions

Because the Fund has elected to be treated as a partnership for tax purposes, it is not required to make distributions to its shareholders. It is the policy of the Fund to declare and pay distributions as determined by the Trustees (or their delegates). Cash distributions made to shareholders during the period are presented in the Fund's Statement of Changes in Net Assets.

Security transactions and related investment income

Security transactions are accounted for on the trade date in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value, and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other


34


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Leveraging Risk — The Fund's use of reverse repurchase agreements and other derivatives and securities lending may cause its portfolio to be leveraged. The Fund is not limited in the extent to which it may use derivatives or in the absolute face value of its derivative positions. Leverage increases the Fund's portfolio losses and reduces opportunities for gain when interest rates or currency rates are changing.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to a repurchase or reverse repurchase agreement or other OTC derivatives contracts, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security will be unable or unwilling to make timely principal, interest, or settlement payments or otherwise honor its obligations. This risk is particularly pronounced for the Fund because it invests primarily in sovereign debt of emerging countries, which is typically below investment grade. Below investment grade bonds ("junk bonds") have speculative characteristics, and changes in economic conditions or other circumstances are more likely to lead to an issuer's weakened capacity to make principal and interest payments than is the case with investment grade bonds. This risk is also particularly pronounced for the Fund because it typically uses OTC derivatives, including swap contracts with longer-term maturities, and may have significant exposure to a single counterparty. The risk of counterparty default is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Because the Fund typically invests in securities that are of lesser quality than those in its benchmark, in rapidly declining markets the percentage decline in the value of the Fund is likely to exceed that of its benchmark.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. The Fund invests in asset-backed securities that may be less liquid than the Fund's benchmark. The Fund may be required to sell certain less liquid securities at distressed prices or meet redemption requests in-kind. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular the asset-backed securities held by the Fund.

• Derivatives Risk — The use of derivatives involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset.

• Focused Investment Risk — Focusing investments in countries, regions, or sectors with high positive correlations to one another creates additional risk. This risk may be particularly pronounced for the Fund because of its exposure to asset-backed securities secured by different types of consumer debt (e.g., credit-card receivables, automobile loans, and home equity loans).


35


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Other principal risks of an investment in the Fund include Foreign Investment Risk (risk that the market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities), Currency Risk (risk that fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies), Market Disruption and Geopolitical Risk (the risk that geopolitical events may increase marke t volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified. For more information about reverse r epurchase agreements and other derivatives, please refer to the descriptions of financial instruments (e.g. reverse repurchase agreements, swaps, futures and other types of derivative contracts) in Note 2 above as well as the discussion of the Fund's use of derivatives below.

The Fund invests in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of underlying assets or other support available to prod uce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed


36


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underlying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

The Fund uses its cash balance to meet its collateral obligations and for other purposes. There is no assurance that the Fund's cash balance will be sufficient to meet those obligations. If it is not, the Fund would be required to liquidate portfolio positions. To manage the Fund's cash collateral needs, the Manager reserves the right to reduce or eliminate the Fund's derivative exposures. A reduction in those exposures may cause the performance of the 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.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 until August 2, 2009, the fee on cash redemptions was 2.00% of the amount redeemed. From August 3, 2009 through August 31, 2009, the fee on cash redemptions was 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relatin g to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a


37


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund uses derivatives as a substitute for direct investment in securities or other assets. In particular, the Fund may use swaps (including credit default swaps) or other derivatives on an index, a single security or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.


38


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some


39


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options)		   $ 68,753,410     $ 36,671,753     $ —     $ —     $ —     $ 105,425,163    
Unrealized appreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     6,147,630       —       5,865,320       —       —       12,012,950    
Total   $ 74,901,040     $ 36,671,753     $ 5,865,320     $ —     $ —     $ 117,438,113    
Liabilities:  
Written options outstanding   $ (31,854,889 )   $ (1,073,625 )   $ —     $ —     $ —     $ (32,928,514 )  
Unrealized depreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     (27,559,622 )     —       (3,856,829 )     —       —       (31,416,451 )  
Total   $ (59,414,511 )   $ (1,073,625 )   $ (3,856,829 )   $ —     $ —     $ (64,344,965 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's


40


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ (32,097,764 )   $ (3,527,550 )   $ —     $ —     $ —     $ (35,625,314 )  
Futures contracts     1,532,181       —       —       —       —       1,532,181    
Swap contracts     7,482,925       —       196,995       —       —       7,679,920    
Written options     31,253,406       —       3,900,000       —       —       35,153,406    
Forward currency contracts     —       —       —       —       —       —    
Total   $ 8,170,748     $ (3,527,550 )   $ 4,096,995     $ —     $ —     $ 8,740,193    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ 12,332,768     $ 5,670,937     $ —     $ —     $ —     $ 18,003,705    
Futures contracts     —       —       —       —       —       —    
Swap contracts     238,012       —       389,566       —       —       627,578    
Written options     (4,358,319 )     1,411,375       —       —       —       (2,946,944 )  
Forward currency contracts     —       —       —       —       —       —    
Total   $ 8,212,461     $ 7,082,312     $ 389,566     $ —     $ —     $ 15,684,339    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Swaps   Options  
Average notional amount outstanding   $ 11,116     $ 1,779,738,533     $ 14,778,688,618    
Highest notional amount outstanding     77,814       2,437,002,216       22,167,170,439    
Lowest notional amount outstanding     —       1,161,913,886       8,739,901,529    

 


41


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 expenses incurred by the Fund through at least June 30, 2010 (excluding fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fund) 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, extraor dinary, 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, 2009 was $6,509 and $3,772, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.

4.  Purchases and sales of securities

For the period ended August 31, 2009, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ 93,611,748     $ —    
Investments (non-U.S. Government securities)     96,272,949       123,640,502    

 

Proceeds from sales of securities for in-kind transactions for the period ended August 31, 2009 were $6,279,242.

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


42


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 55.64% 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. The shareholder is another fund of the Trust.

As of August 31, 2009, no shares of the Fund were held by senior management of the Manager and GMO Trust officers and 99.89% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
    Shares   Amount   Shares   Amount  
Shares sold     —     $ —       6,499,921     $ 163,700,000    
Shares repurchased     (357,685 )     (6,624,317 )     (20,970,764 )     (504,651,905 )  
Redemption fees     —       —       —       432,682    
Net increase (decrease)     (357,685 )   $ (6,624,317 )     (14,470,843 )   $ (340,519,223 )  

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. On September 14, 2009, the Fund's redemption fee was eliminated.


43



GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered that the Fund is intended to complement other strategies offered by the Manager and is not intended to stand on its own, and concluded that the usefulness of the Fund's performance relative to its benchmark was limited because the Fund is not managed to a benchmark. The Trustees also considered the qualifications and experience of the personnel resp onsible 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


44


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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 15, 2009, 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, 2009.


45


GMO World Opportunity Overlay Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including redemption fees; 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, 2009 through August 31, 2009.

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
Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
1) Actual     0.04 %   $ 1,000.00     $ 1,156.20     $ 0.22    
2) Hypothetical     0.04 %   $ 1,000.00     $ 1,025.00     $ 0.20    

 

*  Expenses are calculated using the annualized expense ratio (including interest expense) for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


46



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     98.8 %  
Short-Term Investments     2.0    
Other     (0.8 )  
      100.0 %  
Industry Group Summary   % of Equity Investments  
Pharmaceuticals, Biotechnology & Life Sciences     22.4 %  
Software & Services     14.6    
Food, Beverage & Tobacco     11.3    
Energy     10.9    
Technology Hardware & Equipment     8.8    
Food & Staples Retailing     6.6    
Health Care Equipment & Services     5.8    
Household & Personal Products     4.5    
Retailing     3.9    
Telecommunication Services     1.9    
Capital Goods     1.8    
Consumer Services     1.7    
Insurance     1.5    
Diversified Financials     1.2    
Banks     0.5    
Consumer Durables & Apparel     0.5    
Transportation     0.4    
Materials     0.4    
Utilities     0.4    
Media     0.4    
Semiconductors & Semiconductor Equipment     0.3    
Commercial & Professional Services     0.1    
Automobiles & Components     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, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 98.8%  
        Automobiles & Components — 0.1%  
    200     Harley-Davidson, Inc.     4,796    
    300     Johnson Controls, Inc.     7,431    
    Total Automobiles & Components     12,227    
        Banks — 0.5%  
    600     BB&T Corp.     16,764    
    100     Comerica, Inc.     2,667    
    100     People's United Financial, Inc.     1,606    
    200     US Bancorp     4,524    
    1,000     Wells Fargo & Co.     27,520    
    Total Banks     53,081    
        Capital Goods — 1.8%  
    1,000     3M Co.     72,100    
    200     Fastenal Co.     7,240    
    600     General Dynamics Corp.     35,514    
    1,300     General Electric Co.     18,070    
    100     Parker-Hannifin Corp.     4,866    
    700     United Technologies Corp.     41,552    
    100     URS Corp.*      4,323    
    Total Capital Goods     183,665    
        Commercial & Professional Services — 0.1%  
    200     Copart, Inc.*      7,068    
    200     Waste Management, Inc.     5,986    
    Total Commercial & Professional Services     13,054    
        Consumer Durables & Apparel — 0.4%  
    1,000     Coach, Inc.     28,290    
    400     Leggett & Platt, Inc.     7,300    
    100     Polo Ralph Lauren Corp.     6,638    
    300     Pulte Homes, Inc.     3,834    
    Total Consumer Durables & Apparel     46,062    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Consumer Services — 1.6%  
    900     Apollo Group, Inc.-Class A*      58,338    
    200     Darden Restaurants, Inc.     6,586    
    400     H&R Block, Inc.     6,912    
    200     ITT Educational Services, Inc.*      20,998    
    1,200     McDonald's Corp.     67,488    
    400     Starbucks Corp.*      7,596    
    Total Consumer Services     167,918    
        Diversified Financials — 1.2%  
    2,400     Bank of America Corp.     42,216    
    300     Goldman Sachs Group (The), Inc.     49,638    
    100     IntercontinentalExchange, Inc.*      9,380    
    200     JPMorgan Chase & Co.     8,692    
    300     Morgan Stanley     8,688    
    300     SEI Investments Co.     5,532    
    Total Diversified Financials     124,146    
        Energy — 10.8%  
    100     Anadarko Petroleum Corp.     5,287    
    400     BJ Services Co.     6,424    
    5,500     Chevron Corp.     384,670    
    200     Cimarex Energy Co.     7,808    
    1,574     ConocoPhillips     70,877    
    8,100     Exxon Mobil Corp.     560,115    
    700     Nabors Industries Ltd.*      12,376    
    100     Noble Energy, Inc.     6,046    
    200     Occidental Petroleum Corp.     14,620    
    300     Patterson-UTI Energy, Inc.     3,987    
    200     Southwestern Energy Co.*      7,372    
    200     Sunoco, Inc.     5,380    
    600     Valero Energy Corp.     11,244    
    Total Energy     1,096,206    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Food & Staples Retailing — 6.5%  
    400     Kroger Co. (The)     8,636    
    9,900     Wal-Mart Stores, Inc.     503,613    
    4,300     Walgreen Co.     145,684    
    100     Whole Foods Market, Inc.*      2,908    
    Total Food & Staples Retailing     660,841    
        Food, Beverage & Tobacco — 11.2%  
    5,200     Altria Group, Inc.     95,056    
    200     Archer-Daniels-Midland Co.     5,766    
    200     Campbell Soup Co.     6,272    
    8,300     Coca-Cola Co. (The)     404,791    
    300     Coca-Cola Enterprises, Inc.     6,063    
    500     General Mills, Inc.     29,865    
    200     Hansen Natural Corp.*      6,532    
    400     Hershey Co. (The)     15,692    
    200     HJ Heinz Co.     7,700    
    100     JM Smucker Co. (The)     5,227    
    400     Kellogg Co.     18,836    
    500     Kraft Foods, Inc.-Class A     14,175    
    100     Lorillard, Inc.     7,277    
    200     Pepsi Bottling Group (The), Inc.     7,146    
    4,600     PepsiCo, Inc.     260,682    
    5,300     Philip Morris International, Inc.     242,263    
    400     Tyson Foods, Inc.-Class A     4,796    
    Total Food, Beverage & Tobacco     1,138,139    
        Health Care Equipment & Services — 5.8%  
    700     AmerisourceBergen Corp.     14,917    
    100     Baxter International, Inc.     5,692    
    400     Cardinal Health, Inc.     13,832    
    100     Cerner Corp.*      6,171    
    200     Cigna Corp.     5,886    
    300     Coventry Health Care, Inc.*      6,549    
    300     Express Scripts, Inc.*      21,666    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Health Care Equipment & Services — continued  
    500     McKesson Corp.     28,430    
    200     Medco Health Solutions, Inc.*      11,044    
    2,200     Medtronic, Inc.     84,260    
    200     Omnicare, Inc.     4,578    
    200     Quest Diagnostics, Inc.     10,792    
    200     Stryker Corp.     8,292    
    8,921     UnitedHealth Group, Inc.     249,788    
    1,600     WellPoint, Inc.*      84,560    
    700     Zimmer Holdings, Inc.*      33,145    
    Total Health Care Equipment & Services     589,602    
        Household & Personal Products — 4.4%  
    500     Avon Products, Inc.     15,935    
    300     Clorox Co.     17,727    
    1,800     Colgate-Palmolive Co.     130,860    
    100     Energizer Holdings, Inc.*      6,543    
    200     Estee Lauder Cos. (The), Inc.-Class A     7,170    
    900     Kimberly-Clark Corp.     54,414    
    4,000     Procter & Gamble Co. (The)     216,440    
    Total Household & Personal Products     449,089    
        Insurance — 1.4%  
    100     Aflac, Inc.     4,062    
    700     Allstate Corp. (The)     20,573    
    400     Chubb Corp.     19,756    
    300     Fidelity National Financial, Inc.-Class A     4,506    
    200     HCC Insurance Holdings, Inc.     5,288    
    500     Marsh & McLennan Cos., Inc.     11,770    
    200     MetLife, Inc.     7,552    
    500     Old Republic International Corp.     5,955    
    200     Prudential Financial, Inc.     10,116    
    1,000     Travelers Cos. (The), Inc.     50,420    
    300     W.R. Berkley Corp.     7,665    
    Total Insurance     147,663    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Materials — 0.4%  
    700     Dow Chemical Co. (The)     14,903    
    100     Freeport-McMoRan Copper & Gold, Inc.     6,298    
    200     Pactiv Corp.*      4,970    
    100     Reliance Steel & Aluminum Co.     3,694    
    300     Southern Copper Corp.     8,478    
    100     Steel Dynamics, Inc.     1,655    
    Total Materials     39,998    
        Media — 0.4%  
    1,200     Comcast Corp.-Class A     18,384    
    300     DirecTV Group (The), Inc.*      7,428    
    200     Time Warner Cable, Inc.     7,384    
    200     Viacom, Inc.*      5,008    
    Total Media     38,204    
        Pharmaceuticals, Biotechnology & Life Sciences — 22.1%  
    3,000     Abbott Laboratories     135,690    
    100     Allergan, Inc.     5,592    
    4,500     Amgen, Inc.*      268,830    
    300     Biogen Idec, Inc.*      15,063    
    3,200     Bristol-Myers Squibb Co.     70,816    
    100     Cephalon, Inc.*      5,693    
    200     Dendreon Corp.*      4,674    
    4,200     Eli Lilly & Co.     140,532    
    1,200     Forest Laboratories, Inc.*      35,124    
    100     Genzyme Corp.*      5,571    
    800     Gilead Sciences, Inc.*      36,048    
    8,100     Johnson & Johnson     489,564    
    5,700     Merck & Co., Inc.     184,851    
    200     Myriad Genetics, Inc.*      6,114    
    36,430     Pfizer, Inc.     608,381    
    800     Schering-Plough Corp.     22,544    
    200     Vertex Pharmaceuticals, Inc.*      7,482    
    4,400     Wyeth     210,540    
    Total Pharmaceuticals, Biotechnology & Life Sciences     2,253,109    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Retailing — 3.9%  
    100     Advance Auto Parts, Inc.     4,230    
    300     Amazon.com, Inc.*      24,357    
    300     American Eagle Outfitters, Inc.     4,050    
    200     AutoNation, Inc.*      3,796    
    100     AutoZone, Inc.*      14,725    
    500     Bed Bath & Beyond, Inc.*      18,240    
    400     Best Buy Co., Inc.     14,512    
    200     Dollar Tree, Inc.*      9,988    
    200     Family Dollar Stores, Inc.     6,056    
    400     Gap (The), Inc.     7,860    
    5,400     Home Depot, Inc.     147,366    
    400     Kohl's Corp.*      20,636    
    400     Limited Brands, Inc.     5,968    
    2,100     Lowe's Cos., Inc.     45,150    
    200     O'Reilly Automotive, Inc.*      7,656    
    300     PetSmart, Inc.     6,273    
    200     Ross Stores, Inc.     9,328    
    200     Sherwin-Williams Co. (The)     12,040    
    300     Staples, Inc.     6,483    
    400     Target Corp.     18,800    
    300     Urban Outfitters, Inc.*      8,529    
    Total Retailing     396,043    
        Semiconductors & Semiconductor Equipment — 0.3%  
    100     Altera Corp.     1,921    
    200     Broadcom Corp.-Class A*      5,690    
    400     NVIDIA Corp.*      5,808    
    300     Texas Instruments, Inc.     7,377    
    300     Xilinx, Inc.     6,672    
    Total Semiconductors & Semiconductor Equipment     27,468    
        Software & Services — 14.5%  
    100     Affiliated Computer Services, Inc.-Class A*      4,480    
    100     Alliance Data Systems Corp.*      5,556    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Software & Services — continued  
    200     Automatic Data Processing, Inc.     7,670    
    200     BMC Software, Inc.*      7,130    
    200     Citrix Systems, Inc.*      7,136    
    200     Cognizant Technology Solutions Corp.-Class A*      6,976    
    100     Computer Sciences Corp.*      4,885    
    2,361     eBay, Inc.*      52,272    
    100     Fiserv, Inc.*      4,825    
    200     Global Payments, Inc.     8,488    
    610     Google, Inc.-Class A*      281,619    
    200     Intuit, Inc.*      5,554    
    200     McAfee, Inc.*      7,956    
    22,400     Microsoft Corp.     552,160    
    23,100     Oracle Corp.     505,197    
    200     Red Hat, Inc.*      4,592    
    600     Symantec Corp.*      9,072    
    Total Software & Services     1,475,568    
        Technology Hardware & Equipment — 8.7%  
    200     Apple, Inc.*      33,642    
    13,600     Cisco Systems, Inc.*      293,760    
    400     Corning, Inc.     6,032    
    1,400     Dell, Inc.*      22,162    
    500     EMC Corp.*      7,950    
    400     Hewlett-Packard Co.     17,956    
    1,200     International Business Machines Corp.     141,660    
    200     Juniper Networks, Inc.*      4,614    
    900     Motorola, Inc.     6,462    
    7,400     Qualcomm, Inc.     343,508    
    300     SanDisk Corp.*      5,310    
    100     Western Digital Corp.*      3,428    
    Total Technology Hardware & Equipment     886,484    
        Telecommunication Services — 1.9%  
    3,463     AT&T, Inc.     90,211    
    200     CenturyTel, Inc.     6,446    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Telecommunication Services — continued  
    3,042     Verizon Communications, Inc.     94,424    
    Total Telecommunication Services     191,081    
        Transportation — 0.4%  
    200     CH Robinson Worldwide, Inc.     11,252    
    200     Norfolk Southern Corp.     9,174    
    400     United Parcel Service, Inc.-Class B     21,384    
    Total Transportation     41,810    
        Utilities — 0.4%  
    500     CMS Energy Corp.     6,705    
    200     Consolidated Edison, Inc.     8,038    
    100     FPL Group, Inc.     5,618    
    300     PG&E Corp.     12,177    
    200     Southern Co.     6,240    
    Total Utilities     38,778    
    TOTAL COMMON STOCKS (COST $9,254,103)     10,070,236    
        SHORT-TERM INVESTMENTS — 2.0%  
        Money Market Funds — 2.0%  
    208,221     State Street Institutional Treasury Money Market Fund-Institutional Class     208,221    
    TOTAL SHORT-TERM INVESTMENTS (COST $208,221)     208,221    
            TOTAL INVESTMENTS — 100.8%
(Cost $9,462,324)		     10,278,457    
            Other Assets and Liabilities (net) — (0.8%)     (85,859 )  
    TOTAL NET ASSETS — 100.0%   $ 10,192,598    

 

Notes to Schedule of Investments:

*  Non-income producing security.

See accompanying notes to the financial statements.


9



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $9,462,324) (Note 2)   $ 10,278,457    
Receivable for Fund shares sold     35,000    
Dividends receivable     32,624    
Receivable for expenses reimbursed by Manager (Note 3)     8,246    
Total assets     10,354,327    
Liabilities:  
Payable for Fund shares repurchased     116,231    
Payable to affiliate for (Note 3):  
Management fee     2,855    
Shareholder service fee     1,297    
Accrued expenses     41,346    
Total liabilities     161,729    
Net assets   $ 10,192,598    
Net assets consist of:  
Paid-in capital   $ 29,443,283    
Accumulated undistributed net investment income     35,258    
Accumulated net realized loss     (20,102,076 )  
Net unrealized appreciation     816,133    
    $ 10,192,598    
Net assets attributable to:  
Class III shares   $ 10,192,598    
Shares outstanding:  
Class III     1,048,644    
Net asset value per share:  
Class III   $ 9.72    

 

See accompanying notes to the financial statements.


10


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends   $ 130,217    
Total investment income     130,217    
Expenses:  
Management fee (Note 3)     16,167    
Shareholder service fee – Class III (Note 3)     7,348    
Audit and tax fees     28,152    
Custodian, fund accounting agent and transfer agent fees     19,136    
Registration fees     644    
Legal fees     184    
Trustees fees and related expenses (Note 3)     33    
Total expenses     71,664    
Fees and expenses reimbursed by Manager (Note 3)     (48,116 )  
Expense reductions (Note 2)     (8 )  
Net expenses     23,540    
Net investment income (loss)     106,677    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (1,004,665 )  
Change in net unrealized appreciation (depreciation) on investments     3,232,944    
Net realized and unrealized gain (loss)     2,228,279    
Net increase (decrease) in net assets resulting from operations   $ 2,334,956    

 

See accompanying notes to the financial statements.


11


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 106,677     $ 933,776    
Net realized gain (loss)     (1,004,665 )     (20,799,343 )  
Change in net unrealized appreciation (depreciation)     3,232,944       (2,169,581 )  
Net increase (decrease) in net assets from operations     2,334,956       (22,035,148 )  
Distributions to shareholders from:  
Net investment income  
Class III     (110,858 )     (1,107,627 )  
Net share transactions (Note 7):  
Class III     (2,230,226 )     (55,344,097 )  
Total increase (decrease) in net assets     (6,128 )     (78,486,872 )  
Net assets:  
Beginning of period     10,198,726       88,685,598    
End of period (including accumulated undistributed net investment
income of $35,258 and $39,439, respectively)		   $ 10,192,598     $ 10,198,726    

 

See accompanying notes to the financial statements.


12



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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 7.74     $ 12.21     $ 13.48     $ 12.83     $ 12.14     $ 11.58    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.10       0.18       0.21       0.19       0.20       0.16    
Net realized and unrealized
gain (loss)		     1.97       (4.45 )     (1.08 )     0.64       0.69       0.54    
Total from investment
operations		     2.07       (4.27 )     (0.87 )     0.83       0.89       0.70    
Less distributions to shareholders:  
From net investment income     (0.09 )     (0.20 )     (0.22 )     (0.18 )     (0.20 )     (0.14 )  
From net realized gains     —       —       (0.18 )     —       —       —    
Total distributions     (0.09 )     (0.20 )     (0.40 )     (0.18 )     (0.20 )     (0.14 )  
Net asset value, end of period   $ 9.72     $ 7.74     $ 12.21     $ 13.48     $ 12.83     $ 12.14    
Total Return(a)      27.02 %**      (35.43 )%     (6.78 )%     6.53 %     7.46 %     6.12 %(b)   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 10,193     $ 10,199     $ 88,686     $ 116,725     $ 121,339     $ 81,374    
Net expenses to average daily
net assets		     0.48 %(c)*      0.48 %(c)      0.48 %(c)      0.48 %     0.48 %     0.48 %  
Net investment income to average
daily net assets		     2.18 %*      1.55 %     1.55 %     1.46 %     1.65 %     1.39 %  
Portfolio turnover rate     23 %**      66 %     62 %     67 %     62 %     87 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.98 %     0.17 %     0.12 %     0.11 %     0.08 %     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 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 the 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.


13



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Tax-Managed U.S. Equities Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the Russell 3000 Index. The Fund typically makes equity investments in companies that issue stocks included in the Russell 3000 Index, a U.S. stock index, and in companies with similar market capitalizations. The Fund 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. Under normal circumstances, the Fund invests at least 80% of its assets in equity investments (which include common stocks and other stock-related securities, such as preferred stocks, convertible securities, and depository receipts) tied economically to the U.S. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund t akes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, futures, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury 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 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price.


14


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

Asset Valuation Inputs   Investments
in Securities		   Other Financial
Instruments		  
Level 1 - Quoted Prices   $ 10,070,236     $ —    
Level 2 - Other Significant Observable Inputs     208,221       —    
Level 3 - Significant Unobservable Inputs     —       —    
Total   $ 10,278,457     $ —    
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   $ —     $ —    

 


15


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

All of the Fund's common stocks are classified as Level 1. Please refer to the Schedule of Investments for a more detailed categorization of common stocks. All short-term investments are classified as Level 2.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. The Fund had no futures contracts outstanding at the end of the period.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.


16


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the


17


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $10,340,010.


18


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of February 28, 2009, 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:

2/28/2017   $ (8,413,466 )  
Total   $ (8,413,466 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 9,633,604     $ 1,007,619     $ (362,766 )   $ 644,853    

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds.


19


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. There can be no assurance that the Fund's tax management strategies will be effective, and investors may incur tax liabilities that exceed their economic return. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

Other principal risks of an investment in the Fund include Market Risk — Value Securities (risk that the price of the Fund's securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty), Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments in companies with smaller market capitalizations), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.


20


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.33% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of theTrust, 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 (including an exchange-traded fund ) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.33% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.33% of the Fund's average daily net assets.

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, 2009 was $33 and $0, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $2,234,302 and $4,396,656, respectively.


21


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 90.91% 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.

As of August 31, 2009, 0.35% 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 each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     9,307     $ 86,009       147,299     $ 1,297,188    
Shares issued to shareholders
in reinvestment of distributions		     6,159       49,560       85,574       960,217    
Shares repurchased     (284,772 )     (2,365,795 )     (6,181,090 )     (57,601,502 )  
Net increase (decrease)     (269,306 )   $ (2,230,226 )     (5,948,217 )   $ (55,344,097 )  

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


22



GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, the Trustees


23


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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, including the effect of recent market events and changes in assets under management and revenues on such profits. 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 u nder management by, for example, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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.


24


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


25


GMO Tax-Managed U.S. Equities Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.48 %   $ 1,000.00     $ 1,270.20     $ 2.75    
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, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


26



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.7 %  
Short-Term Investments     4.9    
Futures Contracts     0.3    
Other     (1.9 )  
      100.0 %  
Industry Group Summary   % of Equity Investments  
Software & Services     11.2 %  
Retailing     10.4    
Health Care Equipment & Services     10.0    
Pharmaceuticals, Biotechnology & Life Sciences     7.7    
Capital Goods     7.1    
Technology Hardware & Equipment     6.9    
Materials     5.6    
Semiconductors & Semiconductor Equipment     5.4    
Consumer Services     5.3    
Energy     4.8    
Diversified Financials     4.7    
Food, Beverage & Tobacco     4.7    
Commercial & Professional Services     4.5    
Transportation     2.9    
Consumer Durables & Apparel     2.3    
Household & Personal Products     1.3    
Insurance     1.2    
Media     1.0    
Telecommunication Services     1.0    
Food & Staples Retailing     0.8    
Real Estate     0.7    
Automobiles & Components     0.4    
Banks     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, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.7%  
        Automobiles & Components — 0.4%  
    100     Cooper Tire & Rubber Co.     1,428    
    800     Exide Technologies *      5,688    
    500     Goodyear Tire & Rubber Co. (The) *      8,245    
    200     TRW Automotive Holdings Corp. *      3,530    
    Total Automobiles & Components     18,891    
        Banks — 0.1%  
    100     Westamerica Bancorporation     5,143    
        Capital Goods — 6.9%  
    200     AAR Corp. *      3,402    
    200     Aerovironment, Inc. *      5,626    
    100     American Science & Engineering, Inc.     6,159    
    100     Applied Industrial Technologies, Inc.     2,063    
    100     Applied Signal Technology, Inc.     2,547    
    200     Argon ST, Inc. *      3,996    
    100     AZZ, Inc. *      3,442    
    100     Badger Meter, Inc.     3,619    
    900     Beacon Roofing Supply, Inc. *      15,138    
    100     Chart Industries, Inc. *      1,866    
    100     CIRCOR International, Inc.     2,581    
    200     Colfax Corp. *      2,120    
    44     DigitalGlobe, Inc. *      883    
    200     Dynamic Materials Corp.     3,238    
    400     EMCOR Group, Inc. *      9,268    
    200     ESCO Technologies, Inc. *      7,412    
    1,100     Force Protection, Inc. *      5,830    
    100     General Cable Corp. *      3,528    
    100     Gorman-Rupp Co.     2,355    
    300     GrafTech International Ltd. *      4,269    
    100     II-VI, Inc. *      2,676    
    400     KBR, Inc.     9,060    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Capital Goods — continued  
    600     Lennox International, Inc.     21,528    
    1,700     MasTec, Inc. *      16,082    
    100     Michael Baker Corp. *      3,348    
    300     MSC Industrial Direct Co., Inc.-Class A     11,853    
    600     Navistar International Corp. *      25,944    
    300     Oshkosh Corp.     10,080    
    200     Pall Corp.     5,946    
    700     Polypore International, Inc. *      7,959    
    300     Quanex Building Products Corp.     4,041    
    400     Raven Industries, Inc.     11,560    
    200     Sauer-Danfoss, Inc.     1,116    
    400     Shaw Group (The), Inc. *      11,732    
    300     Stanley, Inc. *      7,695    
    200     Sun Hydraulics Corp.     3,686    
    200     Textainer Group Holdings Ltd.     2,838    
    300     Titan Machinery, Inc. *      3,615    
    500     TransDigm Group, Inc. *      22,260    
    100     URS Corp. *      4,323    
    100     Valmont Industries, Inc.     8,233    
    200     Watsco, Inc.     10,566    
    600     WESCO International, Inc. *      14,418    
    Total Capital Goods     309,901    
        Commercial & Professional Services — 4.3%  
    300     Administaff, Inc.     7,242    
    400     American Ecology Corp.     7,312    
    700     Brink's Co. (The)     18,445    
    300     CBIZ, Inc. *      2,148    
    200     Deluxe Corp.     3,342    
    300     Dun & Bradstreet Corp.     21,912    
    200     Equifax, Inc.     5,528    
    200     Exponent, Inc. *      5,656    
    600     Healthcare Services Group, Inc.     10,608    
    200     Herman Miller, Inc.     3,244    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Commercial & Professional Services — continued  
    100     HNI Corp.     2,148    
    200     ICF International, Inc. *      5,470    
    100     Kforce, Inc. *      1,120    
    600     Knoll, Inc.     5,778    
    500     Navigant Consulting, Inc. *      6,295    
    700     Resources Connection, Inc. *      10,787    
    900     Robert Half International, Inc.     23,661    
    800     Rollins, Inc.     14,280    
    200     Team, Inc. *      3,486    
    500     Tetra Tech, Inc. *      14,770    
    100     TrueBlue, Inc. *      1,360    
    500     Watson Wyatt Worldwide, Inc.     21,850    
    Total Commercial & Professional Services     196,442    
        Consumer Durables & Apparel — 2.2%  
    400     CROCS, Inc. *      2,540    
    100     Iconix Brand Group, Inc. *      1,718    
    400     Phillips-Van Heusen Corp.     15,112    
    100     Polaris Industries, Inc.     3,771    
    300     Smith & Wesson Holding Corp. *      1,614    
    2,400     Tempur-Pedic International, Inc. *      35,520    
    500     True Religion Apparel, Inc. *      11,315    
    300     Universal Electronics, Inc. *      5,646    
    500     Warnaco Group (The), Inc. *      19,025    
    100     Wolverine World Wide, Inc.     2,491    
    Total Consumer Durables & Apparel     98,752    
        Consumer Services — 5.1%  
    100     Brink's Home Security Holdings, Inc. *      3,127    
    2,800     Brinker International, Inc.     40,768    
    200     Buffalo Wild Wings, Inc. *      8,246    
    200     California Pizza Kitchen, Inc. *      2,812    
    100     Career Education Corp. *      2,375    
    400     CEC Entertainment, Inc. *      10,700    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Consumer Services — continued  
    800     Cheesecake Factory (The), Inc. *      14,696    
    900     Corinthian Colleges, Inc. *      17,253    
    400     Cracker Barrel Old Country Store, Inc.     11,364    
    600     ITT Educational Services, Inc. *      62,994    
    200     Jack in the Box, Inc. *      4,078    
    100     Panera Bread Co.-Class A *      5,221    
    200     Papa John's International, Inc. *      4,666    
    600     Penn National Gaming, Inc. *      17,526    
    300     PF Chang's China Bistro, Inc. *      9,573    
    200     Pre-Paid Legal Services, Inc. *      9,168    
    100     Universal Technical Institute, Inc. *      2,013    
    200     Wyndham Worldwide Corp.     3,030    
    Total Consumer Services     229,610    
        Diversified Financials — 4.6%  
    100     Affiliated Managers Group, Inc. *      6,533    
    600     AmeriCredit Corp. *      10,356    
    500     Credit Acceptance Corp. *      15,255    
    100     Duff & Phelps Corp-Class A     1,704    
    700     Eaton Vance Corp.     19,999    
    400     EZCORP, Inc.-Class A *      5,348    
    900     Federated Investors Inc.-Class B     23,625    
    400     First Cash Financial Services, Inc. *      7,516    
    100     GAMCO Investors, Inc.-Class A     4,513    
    800     GFI Group, Inc.     5,728    
    500     Greenhill & Co., Inc.     39,600    
    700     Knight Capital Group, Inc.-Class A *      14,084    
    100     Life Partners Holdings, Inc.     1,714    
    200     MF Global Ltd. *      1,430    
    300     optionsXpress Holdings, Inc.     4,992    
    100     SEI Investments Co.     1,844    
    1     Teton Advisors, Inc.-Class B *      2    
    1,400     Waddell and Reed Financial, Inc.     37,142    
    200     World Acceptance Corp. *      5,206    
    Total Diversified Financials     206,591    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Energy — 4.6%  
    200     Arena Resources, Inc. *      6,116    
    200     Concho Resources Inc. *      6,518    
    500     CVR Energy, Inc. *      4,840    
    100     Dawson Geophysical Co. *      2,479    
    700     Dresser-Rand Group, Inc. *      20,790    
    100     Dril-Quip, Inc. *      4,266    
    100     Encore Acquisition Co. *      3,769    
    2,800     Frontier Oil Corp.     35,924    
    200     Golar LNG Ltd.     1,990    
    1,000     Holly Corp.     22,840    
    1,100     International Coal Group, Inc. *      3,344    
    200     Knightsbridge Tankers Ltd.     2,592    
    100     Lufkin Industries, Inc.     4,425    
    1,000     Oceaneering International, Inc. *      52,173    
    100     Petroleum Development Corp. *      1,369    
    200     Petroquest Energy, Inc. *      832    
    100     PHI, Inc. *      2,086    
    100     T-3 Energy Services, Inc. *      1,758    
    1,900     Tesoro Corp.     26,752    
    600     USEC, Inc. *      2,730    
    200     VAALCO Energy, Inc.     944    
    Total Energy     208,537    
        Food & Staples Retailing — 0.8%  
    200     Pantry, Inc. *      3,030    
    1,100     Whole Foods Market, Inc. *      31,988    
    Total Food & Staples Retailing     35,018    
        Food, Beverage & Tobacco — 4.6%  
    800     Cal-Maine Foods, Inc.     22,840    
    100     Coca-Cola Bottling Co.     5,406    
    400     Darling International, Inc. *      2,804    
    2,700     Dean Foods Co. *      48,978    
    400     Green Mountain Coffee Roasters, Inc. *      24,076    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Food, Beverage & Tobacco — continued  
    2,300     Hansen Natural Corp. *      75,118    
    400     Lancaster Colony Corp.     20,104    
    200     National Beverage Corp. *      2,028    
    100     Sanderson Farms, Inc.     4,160    
    Total Food, Beverage & Tobacco     205,514    
        Health Care Equipment & Services — 9.6%  
    200     Abaxis, Inc. *      5,320    
    200     Almost Family, Inc. *      5,514    
    300     American Medical Systems Holdings, Inc. *      4,572    
    100     AMN Healthcare Services, Inc. *      987    
    100     CardioNet, Inc. *      720    
    300     Catalyst Health Solutions, Inc. *      8,568    
    200     Centene Corp. *      3,462    
    300     Cerner Corp. *      18,513    
    400     Chemed Corp.     17,416    
    100     Computer Programs & Systems, Inc.     3,870    
    400     CorVel Corp. *      12,024    
    700     CryoLife, Inc. *      5,215    
    1,100     Edwards Lifesciences Corp. *      68,071    
    300     Emergency Medical Services, LP *      13,605    
    100     Ensign Group, Inc. (The)     1,387    
    200     Exactech, Inc. *      2,974    
    400     Gentiva Health Services, Inc. *      8,820    
    300     Haemonetics Corp. *      15,792    
    3,100     Health Management Associates, Inc. *      21,421    
    100     Health Net, Inc. *      1,532    
    300     Healthways, Inc. *      3,924    
    600     HMS Holdings Corp. *      22,566    
    100     ICU Medical, Inc. *      3,719    
    200     Kensey Nash Corp. *      5,222    
    100     Landauer, Inc.     5,504    
    600     LHC Group, Inc. *      14,670    
    500     Lincare Holdings, Inc. *      13,195    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Health Care Equipment & Services — continued  
    700     Merit Medical Systems, Inc. *      12,635    
    200     Natus Medical, Inc. *      2,850    
    200     Odyssey HealthCare, Inc. *      2,576    
    500     Omnicare, Inc.     11,445    
    100     Orthofix International NV *      2,737    
    200     Owens & Minor, Inc.     8,850    
    100     PSS World Medical, Inc. *      2,044    
    500     Quality Systems, Inc.     26,920    
    700     ResMed, Inc. *      32,137    
    5,700     Tenet Healthcare Corp. *      26,562    
    100     Thoratec Corp. *      2,624    
    300     VCA Antech, Inc. *      7,425    
    200     WellCare Health Plans, Inc. *      4,854    
    100     Young Innovations, Inc.     2,348    
    Total Health Care Equipment & Services     434,590    
        Household & Personal Products — 1.2%  
    500     Energizer Holdings, Inc. *      32,715    
    100     Herbalife Ltd.     3,028    
    50     Inter Parfums, Inc.     482    
    400     Nu Skin Enterprises, Inc.-Class A     6,900    
    200     USANA Health Sciences, Inc. *      6,304    
    200     WD-40 Co.     5,396    
    Total Household & Personal Products     54,825    
        Insurance — 1.2%  
    500     Axis Capital Holdings Ltd.     15,240    
    100     eHealth, Inc. *      1,850    
    100     Fidelity National Financial, Inc.-Class A     1,502    
    100     First Mercury Financial Corp.     1,449    
    2,700     Genworth Financial, Inc.-Class A     28,512    
    200     Tower Group, Inc.     4,798    
    Total Insurance     53,351    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Materials — 5.4%  
    300     Allied Nevada Gold Corp. *      2,427    
    300     Balchem Corp.-Class B     7,470    
    800     Ball Corp.     38,768    
    100     Bway Holding Co. *      1,550    
    400     Calgon Carbon Corp. *      5,720    
    600     Crown Holdings, Inc. *      14,898    
    200     Eagle Materials, Inc.     5,266    
    200     FMC Corp.     9,540    
    100     Greif, Inc.-Class A     4,954    
    200     Headwaters, Inc. *      768    
    100     Innophos Holdings, Inc.     1,909    
    100     International Flavors & Fragrances, Inc.     3,562    
    100     Lubrizol Corp.     6,372    
    400     NewMarket Corp.     33,248    
    100     Quaker Chemical Corp.     2,072    
    200     Rock-Tenn Co.-Class A     10,258    
    100     Schnitzer Steel Industries, Inc.-Class A     5,401    
    1,700     Scotts Miracle-Gro Co. (The)-Class A     69,173    
    300     ShengdaTech, Inc. *      1,773    
    100     Silgan Holdings, Inc.     4,862    
    200     Steel Dynamics, Inc.     3,310    
    400     Terra Industries, Inc.     12,444    
    Total Materials     245,745    
        Media — 1.0%  
    200     Arbitron, Inc.     3,664    
    700     Marvel Entertainment, Inc. *      33,859    
    200     National CineMedia, Inc.     3,000    
    300     Valassis Communications, Inc. *      4,710    
    Total Media     45,233    
        Pharmaceuticals, Biotechnology & Life Sciences — 7.4%  
    100     Acorda Therapeutics, Inc. *      2,262    
    200     Albany Molecular Research, Inc. *      1,612    
    700     Allos Therapeutics *      5,145    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Pharmaceuticals, Biotechnology & Life Sciences — continued  
    300     Bruker Corp. *      3,045    
    500     Cadence Pharmaceuticals, Inc. *      5,455    
    200     Dendreon Corp. *      4,674    
    100     Dionex Corp. *      6,014    
    1,300     Emergent Biosolutions, Inc. *      24,089    
    200     Endo Pharmaceuticals Holdings, Inc. *      4,514    
    900     eResearchTechnology, Inc. *      5,661    
    300     Geron Corp. *      2,130    
    700     ImmunoGen, Inc. *      5,103    
    100     Kendle International, Inc. *      1,314    
    500     Life Technologies Corp. *      22,265    
    900     MannKind Corp. *      7,011    
    100     MAP Pharmaceuticals, Inc. *      884    
    400     Medicis Pharmaceutical Corp.-Class A     7,388    
    100     Medivation, Inc. *      2,532    
    800     Millipore Corp. *      52,984    
    300     Momenta Pharmaceuticals, Inc. *      2,970    
    500     Mylan, Inc. *      7,335    
    2,800     Myriad Genetics, Inc. *      85,599    
    700     NPS Pharmaceuticals, Inc. *      2,919    
    600     PAREXEL International Corp. *      7,698    
    100     PDL BioPharma, Inc.     905    
    500     Protalix BioTherapeutics, Inc. *      3,200    
    400     Rigel Pharmaceuticals, Inc. *      2,820    
    200     Sequenom, Inc. *      1,278    
    1,400     Valeant Pharmaceuticals International *      36,246    
    100     Varian, Inc. *      5,122    
    400     Watson Pharmaceuticals, Inc. *      14,116    
    Total Pharmaceuticals, Biotechnology & Life Sciences     334,290    
        Real Estate — 0.6%  
    700     CB Richard Ellis Group, Inc. *      8,288    
    500     DuPont Fabros Technology, Inc. REIT     6,540    
    100     Omega Healthcare Investors, Inc. REIT     1,691    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Real Estate — continued  
    200     Potlatch Corp. REIT     5,820    
    100     Redwood Trust, Inc. REIT     1,603    
    100     Tanger Factory Outlet Centers, Inc. REIT     3,762    
    55     Walter Investment Management Corp. REIT     794    
    Total Real Estate     28,498    
        Retailing — 10.0%  
    500     1-800-FLOWERS.COM, Inc. *      1,545    
    700     Advance Auto Parts, Inc.     29,610    
    2,000     Aeropostale, Inc. *      78,300    
    3,200     American Eagle Outfitters, Inc.     43,200    
    300     AutoNation, Inc. *      5,694    
    600     Buckle (The), Inc.     15,870    
    100     Cato Corp. (The)-Class A     1,708    
    6,000     Chico's FAS, Inc. *      76,380    
    400     Dollar Tree, Inc. *      19,976    
    100     Family Dollar Stores, Inc.     3,028    
      600     Finish Line (The), Inc.-Class A     4,950    
    100     Guess?, Inc.     3,504    
    200     hhgregg, Inc. *      3,456    
    200     Hibbett Sports, Inc. *      3,514    
    500     Jos. A. Bank Clothiers, Inc. *      22,005    
    1,000     Netflix, Inc. *      43,660    
    200     New York & Co., Inc. *      926    
    600     NutriSystem, Inc.     8,538    
    200     O'Reilly Automotive, Inc. *      7,656    
    200     Office Depot, Inc. *      1,044    
    1,800     PetSmart, Inc.     37,638    
    600     Ross Stores, Inc.     27,984    
    600     Williams-Sonoma, Inc.     11,478    
    Total Retailing     451,664    
        Semiconductors & Semiconductor Equipment — 5.3%  
    700     Cree, Inc. *      25,788    
    2,500     Cypress Semiconductor Corp. *      25,300    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Semiconductors & Semiconductor Equipment — continued  
    500     Diodes, Inc. *      10,135    
    200     Hittite Microwave Corp. *      6,884    
    100     Intersil Corp-Class A     1,479    
    500     IXYS Corp.     3,400    
    1,000     Micrel, Inc.     7,770    
    200     Netlogic Microsystems, Inc. *      8,782    
    800     Novellus System, Inc. *      15,328    
    5,200     ON Semiconductor Corp. *      41,964    
    200     Pericom Semiconductor Corp. *      1,722    
    1,400     PMC-Sierra, Inc. *      12,712    
    100     Power Integrations, Inc.     3,275    
    800     Semtech Corp. *      14,616    
    1,700     Silicon Image, Inc. *      5,168    
    400     Silicon Laboratories, Inc. *      18,016    
    1,400     Skyworks Solutions, Inc. *      16,310    
    100     Supertex, Inc. *      2,584    
    300     Tessera Technologies, Inc. *      7,539    
    500     Volterra Semiconductor Corp. *      8,855    
    Total Semiconductors & Semiconductor Equipment     237,627    
        Software & Services — 10.9%  
    800     ACI Worldwide, Inc. *      10,848    
    300     Actuate Corp. *      1,686    
    900     Broadridge Financial Solutions, Inc.     18,738    
    100     CACI International, Inc.-Class A *      4,596    
    1,100     Cadence Design Systems, Inc. *      6,897    
    200     Cass Information Systems, Inc.     6,244    
    700     Compuware Corp. *      5,047    
    100     Convergys Corp. *      1,084    
    900     CSG Systems International, Inc. *      13,563    
    500     Digital River, Inc. *      17,660    
    800     EarthLink, Inc. *      6,656    
    100     Forrester Research, Inc. *      2,354    
    100     Global Cash Access Holdings, Inc. *      725    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Software & Services — continued  
    300     Global Payments, Inc.     12,732    
    500     Hewitt Associates Inc.-Class A *      18,010    
    900     Integral Systems, Inc. *      5,643    
    900     j2 Global Communications, Inc. *      19,233    
    200     Mantech International Corp.-Class A *      10,568    
    300     MAXIMUS, Inc.     12,495    
    800     McAfee, Inc. *      31,824    
    100     Micros Systems, Inc. *      2,787    
    100     NCI, Inc. *      2,935    
    300     Net 1 UEPS Technologies, Inc. *      5,727    
    100     NeuStar, Inc. *      2,318    
    100     Opnet Technologies, Inc.     946    
    600     Pegasystems, Inc.     18,378    
    400     Radiant Systems, Inc. *      4,288    
    1,100     Red Hat, Inc. *      25,256    
    500     Renaissance Learning, Inc.     4,955    
    1,400     Rovi Corp. *      42,616    
    500     SAIC, Inc. *      9,245    
    200     Smith Micro Software, Inc. *      2,310    
    100     SPSS, Inc. *      4,980    
    1,000     Sybase, Inc. *      34,850    
    300     Synchronoss Technologies, Inc. *      3,189    
    400     Syntel, Inc.     16,028    
    2,300     TeleCommunication Systems, Inc. *      17,342    
    100     TIBCO Software, Inc. *      887    
    200     TNS, Inc. *      5,192    
    600     Tyler Technologies, Inc. *      9,138    
    900     Valueclick, Inc. *      9,225    
    1,200     VistaPrint Ltd. *      49,728    
    100     Websense, Inc. *      1,516    
    300     Wright Express Corp. *      9,456    
    Total Software & Services     489,895    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Technology Hardware & Equipment — 6.7%  
    700     Acme Packet, Inc. *      5,712    
    300     ADTRAN, Inc.     6,822    
    700     Airvana, Inc. *      4,543    
    400     Arrow Electronics, Inc. *      11,056    
    1,100     Avnet, Inc. *      29,315    
    100     AVX Corp.     1,161    
    500     Blue Coat Systems, Inc. *      9,805    
    1,100     Brocade Communications Systems, Inc. *      7,953    
    100     Cogent, Inc. *      1,050    
    800     Cogo Group, Inc. *      4,320    
    1,100     F5 Networks, Inc. *      37,939    
    300     Faro Technologies, Inc. *      5,103    
    900     InterDigital, Inc. *      18,864    
    900     Jabil Circuit, Inc.     9,855    
    200     Multi-Fineline Electronix, Inc. *      5,528    
    100     Novatel Wireless, Inc. *      965    
    2,400     Palm, Inc. *      31,992    
    200     Plexus Corp. *      5,036    
    300     Polycom, Inc. *      7,077    
    700     Riverbed Technology, Inc. *      13,496    
    300     Rofin-Sinar Technologies, Inc. *      6,822    
    200     Scansource, Inc. *      5,598    
    200     ShoreTel, Inc. *      1,260    
    1,800     Starent Networks Corp. *      36,432    
    300     STEC, Inc. *      12,159    
    600     Stratasys, Inc. *      8,634    
    500     Synaptics, Inc. *      12,890    
    Total Technology Hardware & Equipment     301,387    
        Telecommunication Services — 1.0%  
    300     Neutral Tandem, Inc. *      7,503    
    300     Premiere Global Services, Inc. *      2,808    
    700     Shenandoah Telecommunications Co.     12,075    
    1,200     Syniverse Holdings, Inc. *      21,444    
    Total Telecommunication Services     43,830    

 

See accompanying notes to the financial statements.


14


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Transportation — 2.8%  
    3,400     Airtran Holdings, Inc. *      22,610    
    100     Allegiant Travel Co. *      3,919    
    5,300     AMR Corp. *      28,938    
    800     Avis Budget Group, Inc. *      7,784    
    100     Continental Airlines, Inc. *      1,327    
    600     Copa Holdings SA     25,062    
    1,700     Delta Air Lines, Inc. *      12,274    
    100     Hawaiian Holdings, Inc. *      732    
    100     HUB Group Inc.-Class A *      2,193    
    100     JB Hunt Transport Services, Inc.     2,803    
    300     Knight Transportation, Inc.     4,947    
    300     Old Dominion Freight Line, Inc. *      10,734    
    300     Pacer International, Inc.     1,242    
    100     UAL Corp. *      623    
    Total Transportation     125,188    
    TOTAL COMMON STOCKS (COST $4,433,649)     4,360,522    
        SHORT-TERM INVESTMENTS — 4.9%  
        Money Market Funds — 4.9%  
    223,224     State Street Institutional Treasury Money Market Fund - Institutional Class     223,224    
    TOTAL SHORT-TERM INVESTMENTS (COST $223,224)     223,224    
          TOTAL INVESTMENTS — 101.6%
(Cost $4,656,873)		     4,583,746    
          Other Assets and Liabilities (net) — (1.6%)     (74,333 )  
    TOTAL NET ASSETS — 100.0%   $ 4,509,413    

 

See accompanying notes to the financial statements.


15


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys                  
  1     Russell 2000 Mini   September 2009   $ 57,170     $ 6,113    
  1     S&P Midcap 400 E-Mini   September 2009     65,400       7,268    
            $ 122,570     $ 13,381    

 

As of August 31, 2009, 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 Growth Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $4,656,873) (Note 2)   $ 4,583,746    
Cash     12,248    
Receivable for investments sold     97,057    
Dividends receivable     1,830    
Receivable for collateral on open futures contracts (Note 2)     10,000    
Receivable for expenses reimbursed by Manager (Note 3)     5,859    
Total assets     4,710,740    
Liabilities:  
Payable for investments purchased     134,312    
Payable to affiliate for (Note 3):  
Management fee     1,183    
Shareholder service fee     572    
Payable for variation margin on open futures contracts (Note 2)     1,539    
Accrued expenses     63,721    
Total liabilities     201,327    
Net assets   $ 4,509,413    
Net assets consist of:  
Paid-in capital   $ 8,318,984    
Accumulated undistributed net investment income     956    
Accumulated net realized loss     (3,750,781 )  
Net unrealized depreciation     (59,746 )  
    $ 4,509,413    
Net assets attributable to:  
Class III shares   $ 4,509,413    
Shares outstanding:  
Class III     460,430    
Net asset value per share:  
Class III   $ 9.79    

 

See accompanying notes to the financial statements.


17


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends   $ 16,924    
Interest     158    
Total investment income     17,082    
Expenses:  
Management fee (Note 3)     6,997    
Shareholder service fee – Class III (Note 3)     3,385    
Audit and tax fees     28,152    
Custodian, fund accounting agent and transfer agent fees     18,124    
Registration fees     460    
Legal fees     92    
Trustees fees and related expenses (Note 3)     25    
Total expenses     57,235    
Fees and expenses reimbursed by Manager (Note 3)     (46,828 )  
Net expenses     10,407    
Net investment income (loss)     6,675    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (1,023,936 )  
Closed futures contracts     17,803    
Net realized gain (loss)     (1,006,133 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     2,130,883    
Open futures contracts     24,935    
Net unrealized gain (loss)     2,155,818    
Net realized and unrealized gain (loss)     1,149,685    
Net increase (decrease) in net assets resulting from operations   $ 1,156,360    

 

See accompanying notes to the financial statements.


18


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 6,675     $ 23,157    
Net realized gain (loss)     (1,006,133 )     (1,374,773 )  
Change in net unrealized appreciation (depreciation)     2,155,818       (1,711,859 )  
Net increase (decrease) in net assets from operations     1,156,360       (3,063,475 )  
Distributions to shareholders from:  
Net investment income  
Class III     (5,845 )     (22,611 )  
Net share transactions (Note 7):  
Class III     (528,333 )     (1,236,081 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     4,866       6,384    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (523,467 )     (1,229,697 )  
Total increase (decrease) in net assets     627,048       (4,315,783 )  
Net assets:  
Beginning of period     3,882,365       8,198,148    
End of period (including accumulated undistributed net investment
income of $956 and $126, respectively)		   $ 4,509,413     $ 3,882,365    

 

See accompanying notes to the financial statements.


19



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

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

    Six Months
Ended
August 31, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 7.54     $ 13.59     $ 18.93     $ 19.67     $ 21.96     $ 21.78    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.01       0.04       0.06       0.07       0.06       0.03    
Net realized and unrealized gain
(loss)		     2.25       (6.05 )     (1.79 )     0.79       2.93       1.96    
Total from investment
operations		     2.26       (6.01 )     (1.73 )     0.86       2.99       1.99    
Less distributions to shareholders:  
From net investment income     (0.01 )     (0.04 )     (0.06 )     (0.09 )     (0.07 )     (0.01 )  
From net realized gains     —       —       (3.49 )     (1.51 )     (5.21 )     (1.80 )  
Return of capital     —       —       (0.06 )     —       —       —    
Total distributions     (0.01 )     (0.04 )     (3.61 )     (1.60 )     (5.28 )     (1.81 )  
Net asset value, end of period   $ 9.79     $ 7.54     $ 13.59     $ 18.93     $ 19.67     $ 21.96    
Total Return(a)      30.01 %**      (44.27 )%     (11.74 )%     4.86 %     14.63 %     10.50 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 4,509     $ 3,882     $ 8,198     $ 25,314     $ 29,804     $ 38,801    
Net expenses to average daily net
assets		     0.46 %*      0.46 %     0.46 %     0.46 %     0.48 %     0.48 %  
Net investment income to average
daily net assets		     0.30 %*      0.35 %     0.30 %     0.38 %     0.30 %     0.16 %  
Portfolio turnover rate     65 %**      127 %     118 %     109 %     87 %     110 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     2.07 %*      1.74 %     0.48 %     0.60 %     0.35 %     0.26 %  
Purchase premiums and redemption
fees consisted of the following
per share amounts:† 		   $ 0.01     $ 0.01     $ 0.07     $ 0.03     $ 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.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


20



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO U.S. Small/Mid Cap Growth Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the Russell 2500 Growth Index. The Fund typically makes equity investments in U.S. companies that issue stocks included in the Russell 2500 Index, a U.S. stock index, and in companies with similar market capitalizations ("small- and mid-cap companies"). Under normal circumstances, the Fund invests at least 80% of its assets in investments in small- and mid-cap companies tied economically to the U.S. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, f utures, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury 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 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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.


21


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

Asset Valuation Inputs   Investments in
Securities		   Other Financial
Instruments*		  
Level 1 - Quoted Prices   $ 4,360,522     $ 13,381    
Level 2 - Other Significant Observable Inputs     223,224       —    
Level 3 - Significant Unobservable Inputs     —       —    
Total   $ 4,583,746     $ 13,381    

 

*  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   $ —     $ —    

 


22


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

All of the Fund's common stocks and futures are classified as Level 1. Please refer to the Schedule of Investments for a more detailed categorization of common stocks. All short-term investments are classified as Level 2.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. 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 various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset


23


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.


24


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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.


25


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $830,507.

As of February 28, 2009, 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:

2/28/2017   $ (1,886,733 )  
Total   $ (1,886,733 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 4,676,386     $ 367,125     $ (459,765 )   $ (92,640 )  

 

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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.


26


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Smaller Company Risk — The securities of small- and mid-cap companies typically are less widely held, trade less frequently and in lesser quantities, and have market prices that may fluctuate more than those of securities of larger capitalization companies.

• Market Risk — Growth Securities — Growth securities typically trade at higher multiples of current earnings than other securities. The market prices of growth securities are often more sensitive to market fluctuations because of their heavy dependence on future earnings expectations.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Liquidity Risk (difficulty in selling Fund investments), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts


27


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.

Purchases and redemptions of Fund shares

For the six-month period ended August 31, 2009, the premium on cash purchases and fee on cash redemptions of Fund shares were each 0.50% of the amount invested or redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of a Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are receiv ed.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.


28


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors and markets without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index).

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.


29


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


30


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value
(purchased options)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts* 		     —       —       —       13,381       —       13,381    
Unrealized appreciation on
forward currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on
swap agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 13,381     $ —     $ 13,381    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on
forward currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on
swap agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


31


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       17,803       —       17,803    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $       $ 17,803     $ —     $ 17,803    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       24,935       —       24,935    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 24,935       —     $ 24,935    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures  
Average notional amount outstanding   $ 130,270    
Highest notional amount outstanding     272,660    
Lowest notional amount outstanding     77,700    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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.


32


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.31% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.31% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.31% of the Fund's average daily net assets.

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, 2009 was $25 and $0, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $2,780,871 and $3,360,673, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


33


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 83.58% 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.

As of February 28, 2009, no shares of the Fund were held by senior management of the Manager and GMO Trust officers and 96.48% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.   Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     27,153     $ 219,853       1,626     $ 15,144    
Shares issued to shareholders
in reinvestment of distributions		     468       3,952       1,557       15,161    
Shares repurchased     (82,367 )     (752,138 )     (91,318 )     (1,266,386 )  
Purchase premiums     —       1,105       —       64    
Redemption fees     —       3,761       —       6,320    
Net increase (decrease)     (54,746 )   $ (523,467 )     (88,135 )   $ (1,229,697 )  

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


34



GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In


35


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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, including the effect of recent market events and chan ges in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 facto rs, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


36


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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 15, 2009, 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, 2009.


37


GMO U.S. Small/Mid Cap Growth Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

Actual Expenses

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

Hypothetical Example for Comparison Purposes

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

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

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.46 %   $ 1,000.00     $ 1,300.10     $ 2.67    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.89     $ 2.35    

 

*  Expenses are calculated using the Class's annualized expense ratio for the six months ended August 31, 2009, 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 Intrinsic Value Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     97.2 %  
Short-Term Investments     1.4    
Futures Contracts     0.6    
Forward Currency Contracts     0.1    
Rights and Warrants     0.0    
Preferred Stocks     0.0    
Other     0.7    
      100.0 %  
Country Summary   % of Equity Investments  
Japan     28.2 %  
United Kingdom     22.1    
France     11.1    
Switzerland     6.0    
Italy     5.3    
Germany     4.6    
Australia     3.3    
Canada     3.0    
Spain     2.9    
Sweden     2.6    
Netherlands     2.2    
Singapore     1.8    
Hong Kong     1.6    
Belgium     1.5    
Greece     1.0    
Finland     0.9    
Denmark     0.5    
Ireland     0.5    
New Zealand     0.5    
Norway     0.2    
Austria     0.1    
Portugal     0.1    
Malta     0.0    
      100.0 %  

 


1


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Industry Group Summary   % of Equity Investments  
Banks     16.0 %  
Pharmaceuticals, Biotechnology & Life Sciences     13.8    
Energy     9.3    
Materials     6.9    
Telecommunication Services     6.4    
Capital Goods     5.4    
Utilities     5.1    
Automobiles & Components     5.0    
Diversified Financials     4.3    
Food, Beverage & Tobacco     4.0    
Retailing     3.9    
Consumer Durables & Apparel     3.1    
Food & Staples Retailing     2.5    
Insurance     2.1    
Technology Hardware & Equipment     2.1    
Transportation     1.8    
Real Estate     1.7    
Software & Services     1.5    
Media     1.3    
Household & Personal Products     1.2    
Consumer Services     0.9    
Health Care Equipment & Services     0.7    
Semiconductors & Semiconductor Equipment     0.6    
Commercial & Professional Services     0.4    
      100.0 %  

 


2



GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 97.2%  
        Australia — 3.2%  
    255,587     AGL Energy Ltd     3,009,116    
    1,303,750     Australia and New Zealand Banking Group Ltd     23,421,627    
    3,037,541     BlueScope Steel Ltd     7,348,878    
    278,273     Coca Cola Amatil Ltd     2,326,801    
    1,716,397     Foster's Group Ltd     7,939,683    
    15,984,486     GPT Group (REIT)     8,325,645    
    216,844     JB Hi-Fi Ltd     3,263,826    
    226,478     Macquarie Group Ltd     9,722,513    
    4,475,919     Macquarie Infrastructure Group     5,024,211    
    16,549,057     Macquarie Office Trust     3,774,295    
    6,385,197     Mirvac Group     7,944,761    
    658,654     National Australia Bank Ltd     15,848,048    
    4,851,964     Stockland     15,440,624    
    1,710,390     Suncorp-Metway Ltd     11,310,877    
    1,072,390     TABCORP Holdings Ltd     6,074,630    
    2,801,371     Telstra Corp Ltd     7,712,635    
    493,578     Woodside Petroleum Ltd     20,480,198    
    437,201     Woolworths Ltd     10,336,414    
    Total Australia     169,304,782    
        Austria — 0.1%  
    150,187     OMV AG     5,929,656    
        Belgium — 1.5%  
    438,869     Anheuser-Busch InBev NV     18,975,201    
    22,089     Bekaert NV     2,938,985    
    262,919     Belgacom SA     9,876,050    
    40,372     Colruyt SA     9,269,494    
    124,448     Delhaize Group     8,345,693    
    1,657,930     Dexia SA *      14,219,957    
    1,118,233     Fortis *      4,770,343    
    59,448     Mobistar SA     3,831,181    
    61,190     Solvay SA     6,451,480    
    Total Belgium     78,678,384    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Canada — 2.9%  
    653,700     Bank of Montreal     31,647,500    
    192,000     Bank of Nova Scotia     8,043,042    
    51,900     Canadian Imperial Bank of Commerce     3,045,969    
    110,500     Canadian National Railway Co     5,341,548    
    172,800     Canadian Pacific Railway Ltd     8,274,196    
    64,200     Enbridge Inc     2,398,520    
    476,300     Hudbay Minerals Inc *      3,672,046    
    170,000     IGM Financial Inc     6,351,222    
    203,900     Magna International Inc Class A     9,238,128    
    95,700     Metro Inc Class A     3,229,192    
    428,200     National Bank of Canada     24,035,524    
    294,200     Penn West Energy Trust     3,791,881    
    420,600     Sun Life Financial Inc     12,447,993    
    880,768     Suncor Energy Inc     26,943,978    
    92,200     Toronto Dominion Bank (The)     5,700,019    
    Total Canada     154,160,758    
        Denmark — 0.4%  
    277,841     Danske Bank A/S *      7,448,572    
    1,406     NeuroSearch A/S *      34,582    
    267,063     Novo-Nordisk A/S Class B     16,293,276    
    Total Denmark     23,776,430    
        Finland — 0.9%  
    319,626     Neste Oil Oyj     5,318,058    
    876,590     Nokia Oyj     12,305,419    
    193,683     Nokian Renkaat Oyj     4,365,589    
    225,579     Outokumpu Oyj     4,780,863    
    157,487     Rautaruukki Oyj     3,687,189    
    414,483     Sampo Oyj Class A     9,935,010    
    38,955     Stockmann Oyj AB Class A     1,055,343    
    201,993     Tieto Oyj     3,697,396    
    Total Finland     45,144,867    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        France — 10.8%  
    84,053     Air Liquide SA     8,990,999    
    511,607     ArcelorMittal     18,297,223    
    1,106,962     BNP Paribas     89,256,353    
    15,189     Bongrain SA *      1,088,192    
    116,777     Carrefour SA     5,514,852    
    114,756     Casino Guichard-Perrachon SA     8,707,782    
    17,468     CNP Assurances     1,745,096    
    281,650     Compagnie de Saint-Gobain     12,724,784    
    143,212     Dassault Systemes SA     7,335,261    
    160,122     Essilor International SA     8,662,990    
    179,752     European Aeronautic Defense and Space Co NV     3,738,532    
    103,886     Eutelsat Communications     2,781,840    
    962,310     France Telecom SA     24,473,529    
    3,655     Fromageries Bel     681,867    
    260,517     GDF Suez     11,011,606    
    114,962     Hermes International     17,043,684    
    113,509     L'Oreal SA     11,205,312    
    113,451     Nexans SA     8,311,636    
    324,119     Peugeot SA *      9,407,673    
    29,467     PPR     3,430,367    
    152,061     Publicis Groupe     5,604,531    
    522,939     Renault SA *      23,595,874    
    2,218,387     Sanofi-Aventis     151,044,922    
    118,915     SCOR     3,135,786    
    207,748     SES     4,078,531    
    683,581     Societe Generale     55,253,595    
    42,978     Sodexo     2,478,687    
    86,395     Technip SA     5,357,634    
    2,063,413     Thomson *      2,832,608    
    967,705     Total SA     55,526,645    
    21,790     Unibail-Rodamco     4,319,296    
    105,494     Wendel     4,986,200    
    Total France     572,623,887    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Germany — 4.5%  
    199,669     Adidas AG     9,417,132    
    50,324     Allianz SE (Registered)     5,830,770    
    205,107     Aurubis AG     7,821,141    
    186,527     BASF AG     9,748,094    
    392,414     Bayerische Motoren Werke AG     17,910,517    
    52,544     Demag Cranes AG     1,586,801    
    302,138     Deutsche Bank AG (Registered)     20,520,351    
    528,515     Deutsche Post AG (Registered)     9,137,346    
    1,545,233     Deutsche Telekom AG (Registered)     20,574,660    
    450,090     E.ON AG     19,071,100    
    91,753     Freenet AG *      1,231,717    
    201,331     Gildemeister AG     2,554,309    
    263,563     Hannover Rueckversicherung AG (Registered) *      11,611,379    
    554,053     Heidelberger Druckmaschinen AG *      4,854,267    
    178,816     Kloeckner & Co AG *      4,780,836    
    135,086     MTU Aero Engines Holding AG     5,711,887    
    53,974     Muenchener Rueckversicherungs-Gesellschaft AG (Registered)     8,065,040    
    23,697     Puma AG Rudolf Dassler Sport     6,685,733    
    111,971     RWE AG     10,382,675    
    166,522     Salzgitter AG     15,893,536    
    543,833     SAP AG     26,554,094    
    56,392     Software AG     4,328,052    
    272,692     ThyssenKrupp AG     9,300,084    
    36,172     Vossloh AG     4,269,414    
    Total Germany     237,840,935    
        Greece — 0.9%  
    21,657     Agricultural Bank of Greece *      50,015    
    712,575     Alpha Bank A.E. *      11,831,905    
    44,754     Intracom Holdings SA *      96,542    
    669,398     National Bank of Greece SA *      21,025,305    
    505,400     OPAP SA     12,343,983    
    187,868     Public Power Corp SA *      4,430,217    
    Total Greece     49,777,967    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Hong Kong — 1.6%  
    2,939,000     BOC Hong Kong Holdings Ltd     5,869,934    
    4,398,598     CLP Holdings Ltd     29,431,098    
    1,040,000     Esprit Holdings Ltd     6,301,042    
    145,000     Guoco Group     1,395,369    
    5,462,300     Hong Kong & China Gas     11,842,457    
    138,700     Hong Kong Aircraft Engineering Co Ltd     1,624,128    
    3,641,469     Hong Kong Electric Holdings Ltd     20,356,350    
    547,700     Hong Kong Ferry Co Ltd     448,746    
    2,160,400     Yue Yuen Industrial Holdings     5,637,488    
    Total Hong Kong     82,906,612    
        Ireland — 0.5%  
    576,115     C&C Group Plc     2,150,753    
    780,347     CRH Plc     19,965,873    
    197,740     DCC Plc     4,795,929    
    212,480     Kingspan Group Plc *      1,908,368    
    Total Ireland     28,820,923    
        Italy — 5.1%  
    1,117,969     A2A SPA     2,168,634    
    189,502     Ansaldo STS SPA     3,831,698    
    1,157,690     Bulgari SPA     8,408,508    
    5,354,849     Enel SPA     31,646,222    
    3,531,551     ENI SPA     83,911,636    
    115,228     Fondiaria-Sai SPA-Di RISP     1,351,355    
    829,338     Intesa San Paolo *      3,603,698    
    213,451     Italcementi SPA-Di RISP     1,657,074    
    191,850     Luxottica Group SPA *      4,657,325    
    346,064     Maire Tecnimont SPA     1,484,144    
    1,636,898     Mediaset SPA     10,790,522    
    97,300     Natuzzi SPA ADR *      194,600    
    1,686,887     Parmalat SPA     4,337,694    
    131,735     Saipem SPA     3,541,215    
    1,723,130     Snam Rete Gas SPA     8,014,719    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Italy — continued  
    9,653,569     Telecom Italia SPA     15,644,506    
    11,571,092     Telecom Italia SPA-Di RISP     13,145,827    
    1,934,433     Terna SPA     7,137,199    
    18,723,796     UniCredit SPA *      68,015,425    
    Total Italy     273,542,001    
        Japan — 27.4%  
    257,800     Aeon Credit Service Co Ltd     2,913,287    
    1,187,050     Aiful Corp     3,543,765    
    320,300     Aisin Seiki Co Ltd     8,008,912    
    1,139,200     Alps Electric Co Ltd     6,855,258    
    288,400     Asahi Breweries Ltd     5,004,278    
    369,000     Asahi Glass Co Ltd     3,209,491    
    2,199,000     Asahi Kasei Corp     10,575,998    
    526,200     Astellas Pharma Inc     21,032,123    
    763,000     Bank of Yokohama Ltd (The)     4,305,537    
    37,800     Benesse Corp     1,858,200    
    175,200     Bridgestone Corp     3,197,311    
    314,800     Canon Inc     12,033,755    
    263,500     Chubu Electric Power Co Inc     6,126,485    
    146,600     Chugai Pharmaceutical Co Ltd     2,985,872    
    128,800     Chugoku Electric Power Co Inc     2,829,788    
    138,700     Circle K Sunkus Co Ltd     2,253,556    
    333,000     COMSYS Holdings Corp     3,838,884    
    1,954,000     Cosmo Oil Co Ltd     5,997,536    
    613,900     CSK Holdings Corp *      2,958,661    
    517,200     Culture Convenience Club Co Ltd     3,821,264    
    2,040     CyberAgent Inc     1,933,648    
    190,000     Dai Nippon Printing Co Ltd     2,770,577    
    586,200     Daiei Inc *      2,600,207    
    307,000     Daihatsu Motor Co Ltd     3,146,684    
    2,448,000     Daikyo Inc *      6,363,115    
    560,000     Dainippon Screen Manufacturing Co Ltd *      1,931,697    
    185,400     Daito Trust Construction Co Ltd     8,835,353    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    1,398,000     Daiwa Securities Group Inc     8,609,857    
    727,000     Denki Kagaku Kogyo K K     3,072,959    
    310,800     Denso Corp     9,044,914    
    305,100     Don Quijote Co Ltd     7,303,454    
    2,081,000     Dowa Holdings Co Ltd     11,715,412    
    1,241,000     Ebara Corp *      5,559,591    
    238,400     Electric Power Development Co Ltd     7,230,504    
    555,200     Elpida Memory Inc *      8,656,944    
    114,700     Fast Retailing Co Ltd     13,733,158    
    2,848,000     Fuji Heavy Industries Ltd     12,306,680    
    302,900     Fuji Oil Co Ltd     4,250,258    
    1,663,000     Fujikura Ltd     8,747,903    
    556,000     Fujitsu Ltd     3,733,276    
    53,100     Funai Electric Co Ltd     2,121,976    
    799,000     Hankyu Hanshin Holdings Inc     3,825,719    
    1,237,000     Hanwa Co Ltd     4,872,130    
    10,089,000     Haseko Corp *      11,371,427    
    175,200     Hikari Tsushin Inc     3,783,367    
    73,200     Hirose Electric Co Ltd     9,035,649    
    1,580,000     Hitachi Ltd     5,558,006    
    393,100     Hokkaido Electric Power Co Inc     8,101,268    
    111,700     Hokuriku Electric Power Co     2,705,611    
    1,695,700     Honda Motor Co Ltd     53,169,611    
    241,900     Hosiden Corp     3,574,344    
    89,700     Ibiden Co Ltd     3,184,765    
    553     INPEX Corp     4,503,005    
    1,077,000     Iseki & Co Ltd *      4,900,366    
    1,362,000     Itochu Corp     9,640,306    
    621,900     JFE Holdings Inc     21,703,899    
    107,000     K's Holdings Corp     3,281,724    
    1,900,000     Kajima Corp     5,327,027    
    108,500     Kansai Electric Power Co Inc     2,493,322    
    1,175,000     Kao Corp     29,759,619    
    2,767,000     Kawasaki Kisen Kaisha Ltd     12,130,096    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    6,469     Kenedix Inc *      3,121,117    
    8,984     KK daVinci Holdings *      1,376,587    
    144,300     Komatsu Ltd     2,599,823    
    271,600     Konami Corp     5,341,706    
    52,500     Kyocera Corp     4,363,127    
    224,000     Kyowa Exeo Corp     2,255,097    
    215,500     Kyushu Electric Power Co Inc     4,758,740    
    144,200     Lawson Inc     6,243,753    
    1,147,000     Leopalace21 Corp     10,374,983    
    1,849,000     Marubeni Corp     9,182,325    
    703,900     Matsui Securities Co Ltd     6,517,533    
    4,675,000     Mazda Motor Corp     12,975,071    
    138,000     Miraca Holdings Inc     3,979,152    
    2,112,500     Mitsubishi Chemical Holdings Corp     9,589,532    
    516,200     Mitsubishi Corp     10,434,930    
    377,000     Mitsubishi Gas Chemical Co Inc     2,210,562    
    966,000     Mitsubishi Rayon Co Ltd     3,185,812    
    3,509,900     Mitsubishi UFJ Financial Group Inc     22,313,371    
    218,420     Mitsubishi UFJ Lease & Finance Co Ltd     6,921,867    
    3,783,000     Mitsui Mining & Smelting Co Ltd *      10,795,954    
    2,562,000     Mitsui OSK Lines Ltd     16,338,836    
    9,301,900     Mizuho Financial Group Inc     22,630,644    
    145,600     Murata Manufacturing Co Ltd     6,901,634    
    153,000     Nabtesco Corp     1,700,676    
    686,000     NEC Corp *      2,472,727    
    2,204     Net One Systems Co Ltd     3,624,433    
    131,000     NGK Insulators Ltd     3,048,251    
    216,000     NHK Spring Co Ltd     1,591,392    
    71,700     Nichicon Corp     997,386    
    845,000     Nichirei Corp     3,263,996    
    17,500     Nintendo Co Ltd     4,742,905    
    351,000     Nippon Denko Co Ltd     2,688,409    
    183,000     Nippon Electric Glass Co Ltd     1,898,434    
    132,000     Nippon Kayaku Co Ltd     1,155,832    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    4,068,500     Nippon Mining Holdings Inc     20,234,425    
    5,088,000     Nippon Oil Corp     29,050,669    
    131,800     Nippon Paper Group Inc     3,873,608    
    767,700     Nippon Telegraph & Telephone Corp     34,176,448    
    1,160,000     Nippon Yakin Koguo Co Ltd     6,771,813    
    2,835,000     Nippon Yusen KK     12,263,741    
    9,444,500     Nissan Motor Co Ltd     65,897,570    
    56,300     Nissha Printing Co Ltd     2,965,157    
    212,000     Nisshin Seifun Group Inc     2,807,571    
    878,000     Nisshinbo Holdings Inc     10,243,903    
    40,050     Nitori Co Ltd     3,093,917    
    137,000     Nitto Denko Corp     4,154,680    
    377,800     Nomura Holdings Inc     3,347,783    
    236,000     Nomura Research Institute Ltd     5,619,847    
    22,356     NTT Docomo Inc     34,419,668    
    1,322,000     Obayashi Corp     5,948,901    
    374,000     Odakyu Electric Railway Co Ltd     3,356,962    
    347,000     OJI Paper Co Ltd     1,634,976    
    26,400     Okinawa Electric Power Co     1,572,515    
    39,100     Ono Pharmaceutical Co Ltd     1,922,064    
    44,300     Oriental Land Co Ltd     2,994,981    
    397,080     ORIX Corp     30,426,381    
    5,303,000     Osaka Gas Co Ltd     18,327,257    
    1,497,000     Pacific Metals Co Ltd     12,536,847    
    1,028,300     Pioneer Corp *      3,310,352    
    120,600     Point Inc     7,372,234    
    488,000     Rengo Co Ltd     3,038,874    
    1,194,800     Resona Holdings Inc     16,274,878    
    874,000     Ricoh Company Ltd     12,573,605    
    59,500     Rohm Co Ltd     4,016,012    
    146,800     Ryohin Keikaku Co Ltd     6,699,391    
    128,000     Saizeriya Co Ltd     2,120,834    
    313,900     Sankyo Co Ltd     19,744,425    
    1,535,000     Sanyo Electric Co Ltd *      4,137,669    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    1,101,200     Sega Sammy Holdings Inc     14,347,667    
    182,000     Seino Holdings Co Ltd     1,619,054    
    2,041,200     Seven & I Holdings Co Ltd     49,263,674    
    471,000     Sharp Corp     5,436,887    
    77,500     Shikoku Electric Power Co Inc     2,397,215    
    83,700     Shimamura Co Ltd     7,491,086    
    176,000     Shin-Etsu Chemical Co Ltd     10,392,980    
    1,022,200     Showa Shell Sekiyu KK     10,663,242    
    252,300     SoftBank Corp     5,649,486    
    5,615,500     Sojitz Corp     11,999,205    
    443,300     SUMCO Corp     9,040,026    
    1,171,400     Sumitomo Corp     11,984,555    
    1,264,300     Sumitomo Electric Industries Ltd     16,312,143    
    4,116,000     Sumitomo Metal Industries Ltd     10,300,152    
    1,033,000     Sumitomo Metal Mining Co Ltd     15,893,855    
    1,359,000     Sumitomo Osaka Cement Co Ltd     2,888,102    
    2,926,286     Sumitomo Trust & Banking Co Ltd     17,850,435    
    250,600     Suzuki Motor Corp     5,972,261    
    2,080,000     Taiheiyo Cement Co Ltd     3,595,420    
    2,713,000     Taisei Corp     5,947,314    
    401,000     Taiyo Yuden Co Ltd     4,775,895    
    720,700     Takeda Pharmaceutical Co Ltd     28,991,725    
    885,950     Takefuji Corp     4,526,301    
    737,000     Toho Zinc Co Ltd     3,603,916    
    197,800     Tohoku Electric Power Co Inc     4,281,078    
    82,100     Tokai Rika Co Ltd     1,468,881    
    478,200     Tokyo Electric Power Co Inc (The)     12,456,518    
    69,300     Tokyo Electron Ltd     3,763,758    
    2,160,000     Tokyo Gas Co Ltd     8,649,794    
    892,000     Tokyo Steel Manufacturing Co     11,743,360    
    2,073,000     Tokyo Tatemono Co Ltd     12,245,367    
    656,000     TonenGeneral Sekiyu KK     6,271,678    
    407,000     Toppan Printing Co Ltd     4,012,451    
    3,147,000     Tosoh Corp     9,122,994    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    841,000     Toyo Engineering Corp     3,006,154    
    77,000     Toyo Suisan Kaisha Ltd     1,959,648    
    119,200     Toyota Boshoku Corp     2,103,562    
    34,000     Toyota Industries Corp     916,413    
    359,500     Toyota Motor Corp     15,327,014    
    566,000     Toyota Tsusho Corp     9,171,242    
    130,800     Ulvac Inc     3,762,410    
    35,200     Unicharm Corp     3,153,722    
    902,200     UNY Co Ltd     7,624,642    
    112,870     USS Co Ltd     7,106,723    
    825     Wacom Co Ltd     1,657,632    
    14,006     Yahoo Japan Corp     4,758,983    
    86,300     Yamato Kogyo Co     2,571,581    
    216,000     Yamazaki Baking Co Ltd     2,925,903    
    Total Japan     1,459,470,048    
        Malta — 0.0%  
    15,984,486     BGP Holding Plc *      —    
        Netherlands — 2.2%  
    2,747,421     Aegon NV *      20,712,645    
    11,644     Gamma Holdings NV *      114,558    
    339,149     Heineken NV     14,346,151    
    3,595,337     ING Groep NV *      54,210,340    
    820,724     Koninklijke Ahold NV     9,638,320    
    202,525     Koninklijke DSM NV     7,392,630    
    304,829     Reed Elsevier NV     3,238,743    
    241,233     Unilever NV     6,758,810    
    Total Netherlands     116,412,197    
        New Zealand — 0.5%  
    1,497,393     Fletcher Building Ltd     8,056,945    
    8,469,967     Telecom Corp of New Zealand     15,906,421    
    1,357     Vector Ltd     1,879    
    Total New Zealand     23,965,245    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Norway — 0.2%  
    1,140,700     DnB NOR ASA *      11,711,281    
        Portugal — 0.1%  
    571,825     Portugal Telecom SGPS SA     5,929,260    
        Singapore — 1.8%  
    7,117,000     CapitaCommercial Trust     4,398,656    
    2,058,000     Indofood Agri Resources Ltd *      2,372,935    
    9,473,500     Neptune Orient Lines Ltd     10,591,175    
    2,548,200     Noble Group Ltd     3,745,998    
    1,567,000     Oversea-Chinese Banking Corp Ltd     8,418,058    
    3,160,100     Sembcorp Industries Ltd     7,041,467    
    4,650,000     SembCorp Marine Ltd     9,962,898    
    1,213,000     Singapore Exchange Ltd     7,039,580    
    4,653,000     Singapore Press Holdings Ltd     11,813,764    
    2,327,000     Singapore Technologies Engineering Ltd     4,183,946    
    7,590,000     Singapore Telecommunications     16,544,267    
    624,000     United Overseas Bank Ltd     7,237,632    
    119,000     Venture Corp Ltd     711,149    
    Total Singapore     94,061,525    
        Spain — 2.8%  
    68,027     ACS Actividades de Construccion y Servicios SA     3,512,547    
    1,339,828     Banco Bilbao Vizcaya Argentaria SA     23,821,214    
    903,513     Banco Popular Espanol SA     9,738,426    
    2,795,869     Banco Santander SA     43,042,812    
    198,372     Inditex SA     10,818,552    
    1,112,433     Repsol YPF SA     27,650,305    
    1,299,316     Telefonica SA     32,853,187    
    Total Spain     151,437,043    
        Sweden — 2.5%  
    1,368,737     Boliden AB     14,098,282    
    165,817     Electrolux AB Series B *      3,446,885    

 

See accompanying notes to the financial statements.


14


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Sweden — continued  
    1,469,895     Ericsson LM B Shares     14,104,623    
    590,433     Hennes & Mauritz AB Class B     32,783,464    
    246,700     Investor AB Class B     4,600,319    
    104,425     Modern Times Group AB Class B     4,266,897    
    1,783,427     Nordea Bank AB     18,706,167    
    877,803     Skandinaviska Enskilda Banken AB Class A *      6,190,540    
    541,476     SKF AB Class B     8,296,523    
    184,353     Svenska Cellulosa AB Class B *      2,409,847    
    771,832     Svenska Handelsbanken AB Class A     20,284,261    
    494,141     Swedbank AB Class A *      5,188,340    
    Total Sweden     134,376,148    
        Switzerland — 5.8%  
    277,742     Clariant AG (Registered) *      2,518,858    
    247,719     Compagnie Financiere Richemont SA Class A     6,762,136    
    449,688     Credit Suisse Group AG (Registered)     22,942,625    
    1,398,322     Nestle SA (Registered)     58,216,449    
    2,550,859     Novartis AG (Registered)     118,495,345    
    340,055     Roche Holding AG (Non Voting)     54,162,507    
    36,977     Swatch Group AG     7,993,261    
    14,320     Swisscom AG (Registered)     4,962,070    
    125,617     Synthes Inc     14,717,477    
    966,418     UBS AG (Registered) *      17,791,201    
    Total Switzerland     308,561,929    
        United Kingdom — 21.5%  
    1,197,072     3i Group Plc     5,857,522    
    818,853     Amlin Plc     4,894,081    
    384,913     Antofagasta Plc     4,754,852    
    2,703,065     AstraZeneca Plc     125,434,909    
    18,262,928     Barclays Plc *      111,791,646    
    1,062,068     Barratt Developments Plc *      4,220,321    
    1,938,388     BG Group Plc     31,803,383    
    2,911,193     BP Plc     24,950,665    

 

See accompanying notes to the financial statements.


15


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    836,270     British American Tobacco Plc     25,410,307    
    7,037,915     BT Group Plc     15,972,106    
    1,208,798     Burberry Group Plc     9,467,462    
    1,336,720     Cable & Wireless Plc     3,213,238    
    850,281     Cadbury Plc     7,983,807    
    662,152     Capita Group Plc     7,317,315    
    1,097,931     Centrica Plc     4,487,075    
    2,451,066     Cobham Plc     8,030,930    
    1,316,970     Compass Group Plc     6,955,778    
    142,438     CSR Plc *      1,090,693    
    720,386     Daily Mail and General Trust Plc     4,542,221    
    1,891,031     Debenhams Plc     2,434,690    
    1,278,616     Diageo Plc     19,786,711    
    977,689     Drax Group Plc     7,597,605    
    17,792,237     DSG International Plc     8,006,151    
    465,214     Experian Plc     3,893,120    
    388,944     FirstGroup Plc     2,388,976    
    1,413,198     Game Group Plc     3,757,168    
    9,914,448     GlaxoSmithKline Plc     193,607,264    
    3,397,189     Home Retail Group Plc     17,126,056    
    2,833,042     HSBC Holdings Plc     30,620,986    
    181,251     Imperial Tobacco Group Plc     5,083,782    
    476,855     J Sainsbury Plc     2,515,467    
    367,464     Jardine Lloyd Thompson Group Plc     2,878,468    
    315,120     JD Wetherspoon Plc     2,417,633    
    203,013     Kazakhmys Plc     3,221,843    
    1,858,924     Kesa Electricals Plc     4,230,032    
    3,257,084     Kingfisher Plc     11,158,922    
    784,527     Lancashire Holdings Ltd     5,909,673    
    19,899,896     Lloyds Banking Group Plc     35,633,047    
    312,032     London Stock Exchange     4,068,835    
    1,468,571     Marks & Spencer Group Plc     8,078,498    
    311,341     Micro Focus International Plc     1,910,429    
    800,447     Mitchells & Butler Plc *      3,688,499    

 

See accompanying notes to the financial statements.


16


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    489,292     Next Plc     12,978,657    
    1,926,966     Old Mutual Plc     2,921,778    
    689,456     Pearson Plc     8,386,772    
    248,825     Petrofac Ltd     3,541,403    
    392,429     Reckitt Benckiser Group Plc     18,144,928    
    1,040,138     Reed Elsevier Plc     7,524,307    
    11,419,048     Royal Bank of Scotland Group Plc     10,575,534    
    2,280,087     Royal Dutch Shell Plc A Shares (London)     63,063,535    
    1,591,922     Royal Dutch Shell Plc B Shares (London)     42,950,903    
    1,283,430     RSA Insurance Group Plc     2,711,661    
    118,984     SABMiller Plc     2,743,933    
    1,394,768     Sage Group Plc     4,987,203    
    490,476     Scottish & Southern Energy Plc     8,903,402    
    328,423     Signet Jewelers Ltd *      7,768,726    
    904,637     Smith & Nephew Plc     7,659,364    
    708,760     Standard Chartered Plc     15,997,793    
    5,588,676     Taylor Wimpey Plc *      4,720,387    
    1,375,491     Tesco Plc     8,372,937    
    77,877     Thomson Reuters Plc     2,443,310    
    797,833     Travis Perkins Plc     10,409,676    
    222,455     Unilever Plc     6,078,792    
    572,671     United Utilities Group Plc     4,202,769    
    63,879     Vedanta Resources Plc     1,845,018    
    29,037,540     Vodafone Group Plc     62,832,122    
    258,857     Weir Group Plc (The)     2,708,335    
    1,897,695     William Hill Plc     5,692,252    
    517,723     Wolseley Plc *      12,115,207    
    1,668,222     Wolseley Plc (Deferred) *      —    
    1,203,070     Xstrata Plc     15,961,564    
    Total United Kingdom     1,146,434,434    
    TOTAL COMMON STOCKS (COST $5,698,345,842)     5,174,866,312    

 

See accompanying notes to the financial statements.


17


GMO International Intrinsic Value Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value		   Description   Value ($)  
        PREFERRED STOCKS — 0.0%  
        Germany — 0.0%  
    9,049     Villeroy & Boch AG (Non Voting) 7.87% *      57,303    
    TOTAL PREFERRED STOCKS (COST $95,178)     57,303    
        RIGHTS AND WARRANTS — 0.0%  
        Finland — 0.0%  
    38,955     Stockmann Oyj AB Class A Rights, Expires 10/02/09 *      27,923    
    TOTAL RIGHTS AND WARRANTS (COST $20,067)     27,923    
        SHORT-TERM INVESTMENTS — 1.4%  
EUR       184,071     Allied Irish Bank Time Deposit, 0.06%, due 09/01/09     263,884    
CAD       492,854     Bank of America Time Deposit, 0.04%, due 09/01/09     450,198    
USD       61,633     Bank of Ireland Time Deposit, 0.03%, due 09/01/09     61,633    
USD       25,000,000     BNP Paribas Time Deposit, 0.18%, due 09/01/09     25,000,000    
CHF       16,536     Brown Brothers Harriman Time Deposit, 0.02%, due 09/01/09     15,616    
DKK       48,084     Brown Brothers Harriman Time Deposit, 0.30%, due 09/01/09     9,261    
HKD       77,509     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,001    
NOK       61,122     Brown Brothers Harriman Time Deposit, 0.35%, due 09/01/09     10,157    
NZD       14,876     Brown Brothers Harriman Time Deposit, 1.50%, due 09/01/09     10,209    
SEK       72,237     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,148    
AUD       1,190,803     Deutsche Bank Time Deposit, 2.17%, due 09/01/09     1,006,467    
JPY       45,644,480     HSBC Bank (Hong Kong) Time Deposit, 0.01%, due 09/01/09     490,537    
SGD       681,511     JP Morgan Chase Time Deposit, 0.01%, due 09/01/09     472,960    
USD       21,300,000     Royal Bank of Canada Time Deposit, 0.15%, due 09/01/09     21,300,000    
USD       25,000,000     Societe Generale Time Deposit, 0.13%, due 09/01/09     25,000,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $74,111,071)     74,111,071    
          TOTAL INVESTMENTS — 98.6%
(Cost $5,772,572,158)		     5,249,062,609    
          Other Assets and Liabilities (net) — 1.4%     73,590,317    
    TOTAL NET ASSETS — 100.0%   $ 5,322,652,926    

 

See accompanying notes to the financial statements.


18


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys †   
10/23/09   EUR     26,566,706     $ 38,086,883     $ (229,479 )  
10/23/09   EUR     59,464,897       85,250,788       1,354,262    
10/23/09   SEK     162,312,985       22,806,627       479,018    
10/23/09   SEK     162,312,985       22,806,627       407,677    
10/23/09   SEK     162,312,985       22,806,627       486,513    
10/23/09   SEK     162,312,985       22,806,627       351,729    
10/23/09   SEK     162,312,985       22,806,627       463,931    
10/23/09   SEK     162,312,985       22,806,627       407,197    
10/23/09   SEK     162,312,985       22,806,627       471,187    
    $ 282,984,060     $ 4,192,035    
Sales #   
10/23/09   AUD     40,914,400     $ 34,439,528     $ (220,526 )  
10/23/09   CAD     19,901,749       18,180,842       (201,449 )  
10/23/09   CAD     19,901,749       18,180,842       (193,666 )  
10/23/09   CAD     19,901,749       18,180,841       (236,465 )  
10/23/09   CAD     19,901,749       18,180,841       (208,382 )  
10/23/09   SEK     84,516,579       11,875,440       (63,530 )  
10/23/09   SGD     36,245,572       25,141,693       (158,531 )  
10/23/09   SGD     22,337,354       15,494,276       72,367    
10/23/09   SGD     36,245,572       25,141,693       (174,535 )  
    $ 184,815,996     $ (1,384,717 )  

 

†  Fund buys foreign currency; sells USD.

#  Fund sells foreign currency; buys USD.

See accompanying notes to the financial statements.


19


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  1,576     CAC 40   September 2009   $ 82,784,599     $ 5,607,494    
  418     DAX   September 2009     82,061,933       8,899,879    
  255     FTSE 100   September 2009     20,271,187       2,883,110    
  898     FTSE/MIB   September 2009     144,934,260       19,728,037    
  174     MSCI Singapore   September 2009     7,564,498       (86,454 )  
    $ 337,616,477     $ 37,032,066    
Sales      
  551     Hang Seng   September 2009   $ 69,781,218     $ 2,877,577    
  327     IBEX 35   September 2009     53,362,109       (3,779,089 )  
  1,055     S&P/TSX 60   September 2009     125,626,673       (6,013,901 )  
  41     SPI 200   September 2009     3,869,391       (419,940 )  
  16     TOPIX   September 2009     1,651,114       6,489    
    $ 254,290,505     $ (7,328,864 )  

 

As of August 31, 2009, 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:

ADR - American Depositary Receipt

REIT - Real Estate Investment Trust

*  Non-income producing security.

Currency Abbreviations:

AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
DKK - Danish Krone
EUR - Euro
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.


20



GMO International Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $5,772,572,158) (Note 2)   $ 5,249,062,609    
Foreign currency, at value (cost $7,884) (Note 2)     7,906    
Receivable for investments sold     816,960    
Receivable for Fund shares sold     8,617,814    
Dividends and interest receivable     12,868,089    
Foreign taxes receivable     3,492,374    
Unrealized appreciation on open forward currency contracts (Note 2)     4,493,881    
Receivable for collateral on open futures contracts (Note 2)     65,608,727    
Receivable for variation margin on open futures contracts (Note 2)     362,324    
Receivable for expenses reimbursed by Manager (Note 3)     161,603    
Total assets     5,345,492,287    
Liabilities:  
Payable for investments purchased     864,912    
Payable for Fund shares repurchased     16,300,602    
Payable to affiliate for (Note 3):  
Management fee     2,227,488    
Shareholder service fee     564,248    
Administration fee – Class M     2,268    
Trustees and Chief Compliance Officer of GMO Trust fees     9,691    
Payable for 12b-1 fee – Class M     5,398    
Unrealized depreciation on open forward currency contracts (Note 2)     1,686,563    
Miscellaneous payable     320,432    
Accrued expenses     857,759    
Total liabilities     22,839,361    
Net assets   $ 5,322,652,926    

 

See accompanying notes to the financial statements.


21


GMO International Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 6,896,633,036    
Accumulated undistributed net investment income     90,606,864    
Accumulated net realized loss     (1,173,843,511 )  
Net unrealized depreciation     (490,743,463 )  
    $ 5,322,652,926    
Net assets attributable to:  
Class II shares   $ 519,235,189    
Class III shares   $ 2,125,802,472    
Class IV shares   $ 2,663,863,298    
Class M shares   $ 13,751,967    
Shares outstanding:  
Class II     25,513,966    
Class III     103,316,671    
Class IV     129,507,624    
Class M     677,726    
Net asset value per share:  
Class II   $ 20.35    
Class III   $ 20.58    
Class IV   $ 20.57    
Class M   $ 20.29    

 

See accompanying notes to the financial statements.


22


GMO International Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $9,498,606)   $ 93,943,049    
Interest     4,283    
Total investment income     93,947,332    
Expenses:  
Management fee (Note 3)     11,785,226    
Shareholder service fee – Class II (Note 3)     526,410    
Shareholder service fee – Class III (Note 3)     1,386,746    
Shareholder service fee – Class IV (Note 3)     1,068,815    
12b-1 fee – Class M (Note 3)     14,242    
Administration fee – Class M (Note 3)     11,396    
Custodian and fund accounting agent fees     913,114    
Legal fees     90,988    
Trustees fees and related expenses (Note 3)     45,855    
Audit and tax fees     45,448    
Transfer agent fees     36,616    
Registration fees     19,780    
Miscellaneous     61,088    
Total expenses     16,005,724    
Fees and expenses reimbursed by Manager (Note 3)     (1,143,758 )  
Expense reductions (Note 2)     (1,194 )  
Net expenses     14,860,772    
Net investment income (loss)     79,086,560    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (650,782,604 )  
Closed futures contracts     (41,567,177 )  
Foreign currency, forward contracts and foreign currency related transactions     (4,265,771 )  
Net realized gain (loss)     (696,615,552 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     2,363,325,341    
Open futures contracts     71,834,816    
Foreign currency, forward contracts and foreign currency related transactions     16,069,853    
Net unrealized gain (loss)     2,451,230,010    
Net realized and unrealized gain (loss)     1,754,614,458    
Net increase (decrease) in net assets resulting from operations   $ 1,833,701,018    

 

See accompanying notes to the financial statements.


23


GMO International Intrinsic Value Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 79,086,560     $ 208,746,121    
Net realized gain (loss)     (696,615,552 )     (435,831,574 )  
Change in net unrealized appreciation (depreciation)     2,451,230,010       (3,338,411,645 )  
Net increase (decrease) in net assets from operations     1,833,701,018       (3,565,497,098 )  
Distributions to shareholders from:  
Net investment income  
Class II     (6,435,941 )     (16,802,472 )  
Class III     (25,508,052 )     (92,401,886 )  
Class IV     (31,568,603 )     (145,544,379 )  
Class M     (154,476 )     (578,220 )  
Total distributions from net investment income     (63,667,072 )     (255,326,957 )  
Net realized gains  
Class II     —       (26,461,564 )  
Class III     —       (143,314,754 )  
Class IV     —       (230,830,432 )  
Class M     —       (1,002,702 )  
Total distributions from net realized gains     —       (401,609,452 )  
      (63,667,072 )     (656,936,409 )  
Net share transactions (Note 7):  
Class II     (56,520,496 )     166,533,198    
Class III     (54,018,869 )     398,098,987    
Class IV     (128,434,114 )     172,499,767    
Class M     577,080       353,743    
Increase (decrease) in net assets resulting from net share
transactions		     (238,396,399 )     737,485,695    
Total increase (decrease) in net assets     1,531,637,547       (3,484,947,812 )  
Net assets:  
Beginning of period     3,791,015,379       7,275,963,191    
End of period (including accumulated undistributed net investment
income of $90,606,864 and $75,187,376, respectively)		   $ 5,322,652,926     $ 3,791,015,379    

 

See accompanying notes to the financial statements.


24



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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 13.86     $ 29.69     $ 34.99     $ 32.35     $ 29.04     $ 24.18    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.29       0.79       0.93       0.79       0.65       0.49    
Net realized and unrealized gain
(loss)		     6.44       (14.01 )     (0.86 )     5.60       4.45       5.07    
Total from investment operations     6.73       (13.22 )     0.07       6.39       5.10       5.56    
Less distributions to shareholders:  
From net investment income     (0.24 )     (0.99 )     (0.83 )     (0.54 )     (0.36 )     (0.66 )  
From net realized gains     —       (1.62 )     (4.54 )     (3.21 )     (1.43 )     (0.04 )  
Total distributions     (0.24 )     (2.61 )     (5.37 )     (3.75 )     (1.79 )     (0.70 )  
Net asset value, end of period   $ 20.35     $ 13.86     $ 29.69     $ 34.99     $ 32.35     $ 29.04    
Total Return(a)      48.79 %**      (48.04 )%     (1.11 )%     20.46 %     18.16 %     23.17 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 519,235     $ 394,070     $ 510,006     $ 564,440     $ 567,313     $ 231,695    
Net expenses to average daily net
assets		     0.72 %(b)*      0.74 %(c)      0.76 %(c)      0.76 %     0.76 %     0.76 %  
Net investment income to average
daily net assets		     3.32 %*      3.41 %     2.59 %     2.32 %     2.16 %     1.88 %  
Portfolio turnover rate     21 %**      53 %     47 %     36 %     38 %     46 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.05 %*      0.05 %     0.05 %     0.04 %     0.06 %     0.07 %  

 

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

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

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

†  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 III share outstanding throughout each period)

    Six Months
Ended
August 31, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 14.00     $ 29.97     $ 35.28     $ 32.59     $ 29.23     $ 24.32    
Income (loss) from investment
operations:		  
Net investment income
(loss)† 		     0.29       0.79       0.94       0.81       0.72       0.59    
Net realized and unrealized
gain (loss)		     6.53       (14.13 )     (0.86 )     5.66       4.44       5.02    
Total from investment
operations		     6.82       (13.34 )     0.08       6.47       5.16       5.61    
Less distributions to
shareholders:		  
From net investment income     (0.24 )     (1.01 )     (0.85 )     (0.57 )     (0.37 )     (0.66 )  
From net realized gains     —       (1.62 )     (4.54 )     (3.21 )     (1.43 )     (0.04 )  
Total distributions     (0.24 )     (2.63 )     (5.39 )     (3.78 )     (1.80 )     (0.70 )  
Net asset value, end
of period		   $ 20.58     $ 14.00     $ 29.97     $ 35.28     $ 32.59     $ 29.23    
Total Return(a)      48.95 %**      (48.01 )%     (1.06 )%     20.54 %     18.26 %     23.28 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 2,125,802     $ 1,487,839     $ 2,615,878     $ 2,703,050     $ 2,795,610     $ 1,804,485    
Net expenses to average
daily net assets		     0.65 %(b)*      0.67 %(c)      0.69 %(c)      0.69 %     0.69 %     0.69 %  
Net investment income to
average daily net assets		     3.30 %*      3.38 %     2.61 %     2.36 %     2.39 %     2.30 %  
Portfolio turnover rate     21 %**      53 %     47 %     36 %     38 %     46 %  
Fees and expenses
reimbursed by the
Manager to average
daily net assets:		     0.05 %*      0.05 %     0.05 %     0.04 %     0.06 %     0.07 %  

 

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

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

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

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


26


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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 14.00     $ 29.96     $ 35.26     $ 32.58     $ 29.22     $ 24.31    
Income (loss) from investment
operations:		  
Net investment income
(loss)† 		     0.30       0.82       0.96       0.80       0.74       0.54    
Net realized and unrealized
gain (loss)		     6.51       (14.14 )     (0.85 )     5.68       4.43       5.09    
Total from investment
operations		     6.81       (13.32 )     0.11       6.48       5.17       5.63    
Less distributions to
shareholders:		  
From net investment income     (0.24 )     (1.02 )     (0.87 )     (0.59 )     (0.38 )     (0.68 )  
From net realized gains     —       (1.62 )     (4.54 )     (3.21 )     (1.43 )     (0.04 )  
Total distributions     (0.24 )     (2.64 )     (5.41 )     (3.80 )     (1.81 )     (0.72 )  
Net asset value, end
of period		   $ 20.57     $ 14.00     $ 29.96     $ 35.26     $ 32.58     $ 29.22    
Total Return(a)      48.89 %**      (47.95 )%     (0.98 )%     20.61 %     18.32 %     23.37 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 2,663,863     $ 1,900,168     $ 4,131,392     $ 4,566,106     $ 3,150,741     $ 2,193,988    
Net expenses to average
daily net assets		     0.59 %(b)*      0.61 %(c)      0.63 %(c)      0.63 %     0.63 %     0.63 %  
Net investment income to
average daily net assets		     3.40 %*      3.47 %     2.67 %     2.32 %     2.45 %     2.06 %  
Portfolio turnover rate     21 %**      53 %     47 %     36 %     38 %     46 %  
Fees and expenses
reimbursed by the
Manager to average
daily net assets:		     0.05 %*      0.05 %     0.05 %     0.04 %     0.06 %     0.07 %  

 

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

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

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

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


27


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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of period   $ 13.83     $ 29.60     $ 34.93     $ 32.28     $ 28.98     $ 24.15    
Income (loss) from investment operations:  
Net investment income (loss)†      0.26       0.73       0.79       0.68       0.61       0.44    
Net realized and unrealized gain (loss)     6.43       (13.95 )     (0.81 )     5.62       4.41       5.04    
Total from investment operations     6.69       (13.22 )     (0.02 )     6.30       5.02       5.48    
Less distributions to shareholders:  
From net investment income     (0.23 )     (0.93 )     (0.77 )     (0.44 )     (0.29 )     (0.61 )  
From net realized gains     —       (1.62 )     (4.54 )     (3.21 )     (1.43 )     (0.04 )  
Total distributions     (0.23 )     (2.55 )     (5.31 )     (3.65 )     (1.72 )     (0.65 )  
Net asset value, end of period   $ 20.29     $ 13.83     $ 29.60     $ 34.93     $ 32.28     $ 28.98    
Total Return(a)      48.62 %**      (48.14 )%     (1.36 )%     20.18 %     17.92 %     22.88 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 13,752     $ 8,938     $ 18,687     $ 17,371     $ 29,984     $ 18,347    
Net expenses to average daily net assets     0.95 %(b)*      0.97 %(c)      0.99 %(c)      0.99 %     0.99 %     0.99 %  
Net investment income to average daily
net assets		     2.98 %*      3.13 %     2.22 %     2.00 %     2.07 %     1.72 %  
Portfolio turnover rate     21 %**      53 %     47 %     36 %     38 %     46 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.05 %*      0.05 %     0.05 %     0.04 %     0.06 %     0.07 %  

 

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

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

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

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


28



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO International Intrinsic Value Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the MSCI EAFE Value Index (Europe, Australia, and Far East). The Fund typically makes equity investments in companies tied economically to countries other than the U.S. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, futures, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

Throughout the period ended August 31, 2009, 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 they bear.

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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). Unlisted securities for


29


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 93.86% of the net assets of the Fund were valued using fair value prices based on models used by a third party vendor and are classified as using Level 2 inputs in the table below.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

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


30


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Common Stocks  
Australia   $ —     $ 169,304,782     $ —     $ 169,304,782    
Austria     —       5,929,656       —       5,929,656    
Belgium     —       78,678,384       —       78,678,384    
Canada     154,160,758       —       —       154,160,758    
Denmark     —       23,776,430       —       23,776,430    
Finland     —       45,144,867       —       45,144,867    
France     24,473,529       548,150,358       —       572,623,887    
Germany     —       237,840,935       —       237,840,935    
Greece     —       49,777,967       —       49,777,967    
Hong Kong     —       82,906,612       —       82,906,612    
Ireland     —       28,820,923       —       28,820,923    
Italy     194,600       273,347,401       —       273,542,001    
Japan     —       1,459,470,048       —       1,459,470,048    
Malta     —       0 *      —       0    
Netherlands     —       116,412,197       —       116,412,197    
New Zealand     —       23,965,245       —       23,965,245    
Norway     —       11,711,281       —       11,711,281    
Portugal     —       5,929,260       —       5,929,260    
Singapore     —       94,061,525       —       94,061,525    
Spain     —       151,437,043       —       151,437,043    
Sweden     —       134,376,148       —       134,376,148    
Switzerland     —       308,561,929       —       308,561,929    
United Kingdom     —       1,146,434,434       —       1,146,434,434    
TOTAL COMMON STOCKS     178,828,887       4,996,037,425       —       5,174,866,312    
Preferred Stocks  
Germany     —       57,303       —       57,303    
TOTAL PREFERRED STOCKS     —       57,303       —       57,303    

 


31


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

ASSET VALUATION INPUTS — continued

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Rights and Warrants  
Finland   $ —     $ 27,923     $ —     $ 27,923    
Short-Term Investments     74,111,071       —       —       74,111,071    
Total Investments     252,939,958       4,996,122,651       —       5,249,062,609    
Derivatives  
Forward Currency Contracts     —       4,493,881       —       4,493,881    
Futures Contracts     —       40,002,586       —       40,002,586    
Total   $ 252,939,958     $ 5,040,619,118     $ —     $ 5,293,559,076    

 

*  Represents the interest in securities that have no value at August 31, 2009.

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Forward Currency Contracts   $ —     $ (1,686,563 )   $ —     $ (1,686,563 )  
Futures Contracts     (6,013,901 )     (4,285,483 )     —       (10,299,384 )  
Total   $ (6,013,901 )   $ (5,972,046 )   $ —     $ (11,985,947 )  

 

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, 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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included


32


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. 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. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign futures on those exchanges do not reflect events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign futures using fair value prices, which are based on


33


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

adjustments to closing prices supplied by a third party vendor based on that vendor's proprietary models. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.


34


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level


35


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to make a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and warrants held by the Fund 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 carryforwards for U.S. federal income tax purposes. Therefore, no


36


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 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 certain 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $285,032,634.

As of February 28, 2009, 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:

  2/28/2017     $ (154,259,096 )  
  Total     $ (154,259,096 )  

 


37


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 5,843,273,238     $ 366,440,303     $ (960,650,932 )   $ (594,210,629 )  

 

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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 among the classes of shares of the Fund based on the relative net assets of each class. Shareholder service fees, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.


38


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Market Risk — Value Securities — The Fund purchases some equity securities at prices below what the Manager believes to be their fundamental value. The Fund bears the risk that the price of these securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments in companies with s maller market capitalizations), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis ), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected).

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133


39


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index). The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain


40


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


41


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Assets:  
Investments, at value (rights and
warrants)		   $ —     $ —     $ —     $ 27,923     $ —     $ 27,923    
Unrealized appreciation on
futures contracts*		     —       —       —       40,002,586       —       40,002,586    
Unrealized appreciation on
forward currency contracts		     —       4,493,881       —       —       —       4,493,881    
Unrealized appreciation on
swap agreements		     —       —       —       —       —       —    
Total   $ —     $ 4,493,881     $ —     $ 40,030,509     $ —     $ 44,524,390    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts*		     —       —       —       (10,299,384 )     —       (10,299,384 )  
Unrealized depreciation on
forward currency contracts		     —       (1,686,563 )     —       —       —       (1,686,563 )  
Unrealized depreciation on
swap agreements		     —       —       —       —       —       —    
Total   $ —     $ (1,686,563 )   $ —     $ (10,299,384 )   $ —     $ (11,985,947 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


42


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Net Realized Gain (Loss) on:  
Investments (rights and warrants)   $ —     $ —     $ —     $ (17,516,154 )   $ —     $ (17,516,154 )  
Futures contracts     —       —       —       (41,567,177 )     —       (41,567,177 )  
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       (4,005,019 )     —       —       —       (4,005,019 )  
Total   $ —     $ (4,005,019 )   $ —     $ (59,083,331 )   $ —     $ (63,088,350 )  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (rights and warrants)   $ —     $ —     $ —     $ 705,803     $ —     $ 705,803    
Futures contracts     —       —       —       71,834,816       —       71,834,816    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       15,573,254       —       —       —       15,573,254    
Total   $ —     $ 15,573,254     $ —     $ 72,540,619     $ —     $ 88,113,873    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Futures   Rights/Warrants  
Average notional amount outstanding   $ 1,125,464,344     $ 570,374,687     $ 2,254,162    
Highest notional amount outstanding     1,868,282,654       665,132,888       10,077,002    
Lowest notional amount outstanding     467,800,056       430,259,173       —    

 

3.  Fees and other transactions with affiliates

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


43


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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.

Holders of 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 net assets of Class M shares. Pursuant to a Rule 12b-1 distribution plan adopted by the Fund, holders of Class M shares of the Fund may pay a fee, at the annual rate of up to 1.00% of average daily net assets of Class M shares 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 net assets of Class M shares.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.50% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, administration fees, distribution (12b-1) fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an inve stment company (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's 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.

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, 2009 was $36,563 and $21,252, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.


44


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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, 2009 aggregated $957,707,175 and $1,099,984,958, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, the Fund had no shareholders who individually held more than 10% of the Fund's outstanding shares.

As of August 31, 2009, 0.46% shares of the Fund were held by senior management of the Manager and GMO Trust officers, and 53.78% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class II:   Shares   Amount   Shares   Amount  
Shares sold     1,291,819     $ 19,388,771       12,342,982     $ 192,225,431    
Shares issued to shareholders
in reinvestment of distributions		     329,508       5,917,970       1,660,673       38,959,612    
Shares repurchased     (4,544,559 )     (81,827,237 )     (2,745,119 )     (64,651,845 )  
Net increase (decrease)     (2,923,232 )   $ (56,520,496 )     11,258,536     $ 166,533,198    

 


45


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     7,061,119     $ 126,896,595       34,874,353     $ 648,206,780    
Shares issued to shareholders
in reinvestment of distributions		     1,166,629       21,185,985       9,415,098       223,954,309    
Shares repurchased     (11,154,050 )     (202,101,449 )     (25,321,014 )     (474,062,102 )  
Net increase (decrease)     (2,926,302 )   $ (54,018,869 )     18,968,437     $ 398,098,987    
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     28,440,803     $ 432,851,160       50,166,036     $ 1,080,197,863    
Shares issued to shareholders
in reinvestment of distributions		     1,561,753       28,345,811       14,525,469       347,382,151    
Shares repurchased     (36,262,479 )     (589,631,085 )     (66,824,488 )     (1,255,080,247 )  
Net increase (decrease)     (6,259,923 )   $ (128,434,114 )     (2,132,983 )   $ 172,499,767    
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class M:   Shares   Amount   Shares   Amount  
Shares sold     74,413     $ 1,261,177       124,606     $ 2,785,247    
Shares issued to shareholders
in reinvestment of distributions		     8,625       154,476       67,005       1,580,922    
Shares repurchased     (51,700 )     (838,573 )     (176,478 )     (4,012,426 )  
Net increase (decrease)     31,338     $ 577,080       15,133     $ 353,743    

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


46



GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In


47


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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, including the effect of recent market events and chan ges in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 facto rs, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


48


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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 15, 2009, 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, 2009.


49


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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.


50


GMO International Intrinsic Value Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2009 (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     0.72 %   $ 1,000.00     $ 1,487.90     $ 4.52    
2) Hypothetical     0.72 %   $ 1,000.00     $ 1,021.58     $ 3.67    
Class III      
1) Actual     0.65 %   $ 1,000.00     $ 1,489.50     $ 4.08    
2) Hypothetical     0.65 %   $ 1,000.00     $ 1,021.93     $ 3.31    
Class IV      
1) Actual     0.59 %   $ 1,000.00     $ 1,488.90     $ 3.70    
2) Hypothetical     0.59 %   $ 1,000.00     $ 1,022.23     $ 3.01    
Class M      
1) Actual     0.95 %   $ 1,000.00     $ 1,486.20     $ 5.95    
2) Hypothetical     0.95 %   $ 1,000.00     $ 1,020.42     $ 4.84    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


51



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     86.6 %  
Short-Term Investments     19.9    
Options Purchased     2.1    
Preferred Stocks     0.3    
Loan Participations     0.2    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Forward Currency Contracts     0.0    
Futures     (0.3 )  
Written Options     (0.7 )  
Swaps     (1.8 )  
Reverse Repurchase Agreements     (2.4 )  
Other     (4.0 )  
      100.0 %  
Country /Region Summary**   % of Investments  
United States     101.1 %  
United Kingdom     5.1    
Emerging***     4.8    
Euro Region****     4.1    
Australia     1.8    
Canada     1.5    
Sweden     0.5    
Japan     (18.9 )  
      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 table is based on duration-adjusted exposures, taking into account the market value of securities and the notional amounts of swaps and other derivative contracts. Duration is based on the Manager's models. The greater the duration of a bond, the greater its contribution to the concentration percentage. Credit default swap exposures (both positive and negative) are factored into the duration-adjusted exposure using the reference security and applying the same methodology to that security.

***  The "Emerging" exposure is associated with investments in the GMO Emerging Country Debt Fund, which is exposed to emerging countries primarily comprised of Russia, Argentina, Brazil, Philippines, Mexico, Venezuela, Colombia, Uruguay, Turkey and Indonesia., Additional information about the fund's emerging country exposure is available in the financial statements of the GMO Emerging Country Debt Fund.

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


1



GMO Core Plus Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value   Description   Value ($)  
        DEBT OBLIGATIONS — 28.6%  
        Albania — 1.6%  
        Foreign Government Obligations  
USD     14,281,227     Republic of Albania Par Bond, Zero Coupon, due 08/31/25 (a)      4,891,320    
        Australia — 0.2%  
        Asset-Backed Securities  
USD     292,977     Crusade Global Trust, Series 07-1, Class A1, 3 mo. LIBOR + .06%,
0.57%, due 04/19/38		     266,064    
USD     393,622     Medallion Trust, Series 05-1G, Class A1, 3 mo. LIBOR + .08%,
0.54%, due 05/10/36		     370,080    
    Total Australia     636,144    
        United Kingdom — 0.4%  
        Asset-Backed Securities  
USD     300,000     Aire Valley Mortgages, Series 07-1A, Class 1A2, 144A,
3 mo. LIBOR + .09%, 0.70%, due 03/20/30		     150,000    
USD     700,000     Brunel Residential Mortgages, Series 07-1A, Class A4C, 144A,
3 mo. LIBOR + .10%, 0.61%, due 01/13/39		     614,469    
USD     50,125     Granite Master Issuer Plc, Series 06-2, Class A4, 1 mo. LIBOR + .04%,
0.31%, due 12/20/54		     39,097    
USD     400,000     Pendeford Master Issuer Plc, Series 07-1A, Class 3A, 144A,
3 mo. LIBOR + .10%, 0.56%, due 02/12/16		     376,000    
USD     300,000     Permanent Master Issuer Plc, Series 07-1, Class 4A, 3 mo. LIBOR + .08%,
0.59%, due 10/15/33		     262,668    
    Total United Kingdom     1,442,234    
        United States — 26.4%  
        Asset-Backed Securities — 9.6%  
USD     306,738     Alliance Bancorp Trust, Series 07-S1, Class A1, 144A,
1 mo. LIBOR + .20%, 0.47%, due 05/25/37		     37,115    
USD     400,000     AmeriCredit Automobile Receivables Trust, Series 07-AX, Class A4,
XL, 1 mo. LIBOR + .04%, 0.32%, due 10/06/13		     384,120    
USD     1,200,000     Argent Securities, Inc., Series 06-M1, Class A2C, 1 mo. LIBOR + .15%,
0.42%, due 07/25/36		     283,500    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Asset-Backed Securities — continued  
USD     154,190     Argent Securities, Inc., Series 06-M2, Class A2B, 1 mo. LIBOR + .11%,
0.38%, due 09/25/36		     92,514    
USD     1,000,000     Argent Securities, Inc., Series 06-W5, Class A2C, 1 mo. LIBOR + .15%,
0.42%, due 06/25/36		     332,031    
USD     178,078     Bayview Commercial Asset Trust, Series 05-4A, Class A2, 144A,
1 mo. LIBOR + .39%, 0.66%, due 01/25/36		     115,751    
USD     39,013     BMW Vehicle Lease Trust, Series 07-1, Class A3B, 1 mo. LIBOR + .24%,
0.51%, due 08/15/13		     38,991    
USD     300,000     Capital Auto Receivable Asset Trust, Series 07-2, Class A4B,
1 mo. LIBOR + .40%, 0.67%, due 02/18/14		     297,900    
USD     500,000     Charming Shoppes Master Trust, Series 07-1A, Class A1, 144A,
1 mo. LIBOR + 1.25%, 1.52%, due 09/15/17		     461,945    
USD     250,000     Citibank OMNI Master Trust, Series 07-A9A, Class A9, 144A,
1 mo. LIBOR + 1.10%, 1.37%, due 12/23/13		     249,000    
USD     300,000     College Loan Corp. Trust, Series 07-2, Class A1, 3 mo. LIBOR + .25%,
0.75%, due 01/25/24		     298,969    
USD     856,802     Crest Exeter Street Solar, Series 04-1A, Class A1, 144A,
3 mo. LIBOR + .35%, 0.95%, due 06/28/19		     514,081    
USD     300,000     Daimler Chrysler Auto Trust, Series 08-B, Class A4B,
1 mo. LIBOR + 1.85%, 2.13%, due 11/10/14		     288,750    
USD     13,414     Daimler Chrysler Master Owner Trust, Series 06-A, Class A,
1 mo. LIBOR + .03%, 0.30%, due 11/15/11		     13,351    
USD     800,000     First Franklin Mortgage Loan Asset Backed Certificates, Series 06-FF5,
Class 2A3, 1 mo. LIBOR + .16%, 0.43%, due 04/25/36		     324,000    
USD     15,000,000     Federal National Mortgage Association, 30 Yr. TBA, Pool #6331, 4.50%,
due 04/01/38		     15,070,312    
USD     500,000     Ford Credit Auto Owner Trust, Series 06-C, Class A4B,
1 mo. LIBOR + .04%, 0.31%, due 02/15/12		     496,665    
USD     500,000     Ford Credit Floorplan Master Owner Trust, Series 06-4, Class A,
1 mo. LIBOR + .25%, 0.52%, due 06/15/13		     465,000    
USD     100,000     Fremont Home Loan Trust, Series 06-B, Class 2A3, 1 mo. LIBOR + .16%,
0.43%, due 08/25/36		     28,600    
USD     479,654     Fremont Home Loan Trust, Series 06-A, Class 1A2, 1 mo. LIBOR + .20%,
0.46%, due 05/25/36		     244,024    
USD     918,459     GE Business Loan Trust, Series 05-2A, Class A, 144A,
1 mo. LIBOR + .24%, 0.51%, due 11/15/33		     569,444    

 

See accompanying notes to the financial statements.


3


GMO Core Plus Bond Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Asset-Backed Securities — continued  
USD     400,000     GE Capital Credit Card Master Note Trust, Series 07-3, Class A1,
1 mo. LIBOR + .01%, 0.28%, due 06/15/13		     395,200    
USD     500,000     GE Dealer Floorplan Master Trust, Series 06-4, Class A,
1 mo. LIBOR + .01%, 0.28%, due 10/20/11		     498,540    
USD     15,191     GreenPoint Mortgage Funding Trust, Series 05-HE4, Class 2A3C,
1 mo. LIBOR + .25%, 0.52%, due 07/25/30		     13,133    
USD     800,000     GS Mortgage Securities Corp., Series 07-EOP, Class A2, 144A,
1 mo. LIBOR + .13%, 0.41%, due 03/06/20		     672,000    
USD     600,000     Household Credit Card Master Note Trust I, Series 07-2, Class A,
1 mo. LIBOR + .55%, 0.82%, due 07/15/13		     588,000    
USD     369,955     Lehman Brothers Floating Rate Commercial, Series 06-LLFA,
Class A1, 144A, 1 mo. LIBOR + .08%, 0.35%, due 09/15/21		     316,312    
USD     275,590     Lehman Brothers Small Balance Commercial, Series 07-3A, Class 1A1,
144A, 1 mo. LIBOR + .65%, 0.92%, due 10/25/37		     239,763    
USD     200,000     Master Asset-Backed Securities Trust, Series 06-FRE2, Class A4,
1 mo. LIBOR + .15%, 0.42%, due 03/25/36		     70,842    
USD     700,000     Master Asset-Backed Securities Trust, Series 06-HE2, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 06/25/36		     203,686    
USD     1,000,000     Morgan Stanley ACES SPC, Series 05-2A, Class A, 144A,
3 mo. LIBOR + .45%, 1.06%, due 03/20/10		     909,000    
USD     500,000     Morgan Stanley Capital, Inc., Series 07-HE4, Class A2C,
1 mo. LIBOR + .23%, 0.50%, due 02/25/37		     150,000    
USD     300,000     National City Credit Card Master Trust, Series 08-3, Class A,
1 mo. LIBOR + 1.80%, 2.07%, due 05/15/13		     291,000    
USD     312,737     National Collegiate Student Loan Trust, Series 06-1, Class A2,
1 mo. LIBOR + .14%, 0.41%, due 08/25/23		     289,285    
USD     300,000     Nissan Auto Lease Trust, Series 08-A, Class A3B, 1 mo. LIBOR + 2.20%,
2.47%, due 07/15/11		     298,320    
USD     200,000     Nissan Master Owner Trust Receivables, Series 07-A, Class A,
1 mo. LIBOR, 0.27%, due 05/15/12		     191,000    
USD     259,544     Residential Asset Securities Corp., Series 07-KS3, Class AI1,
1 mo. LIBOR + .11%, 0.38%, due 04/25/37		     237,623    
USD     105,452     Residential Funding Mortgage Securities II, Series 03-HS1,
Class AII, FGIC, 1 mo. LIBOR + .29%, 0.56%, due 12/25/32		     45,872    
USD     392,863     Santander Drive Auto Receivables Trust, Series 07-1, Class A4, FGIC,
1 mo. LIBOR + .05%, 0.32%, due 09/15/14		     367,885    
USD     154,943     SBI Heloc Trust, Series 05-HE1, Class 1A, 144A, FSA,
1 mo. LIBOR + .19%, 0.46%, due 11/25/35		     74,149    

 

See accompanying notes to the financial statements.


4


GMO Core Plus Bond Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value /
Shares		   Description   Value ($)  
        Asset-Backed Securities — continued  
USD     554,899     Sierra Receivables Funding Co., Series 06-1A, Class A2, 144A,
MBIA, 1 mo. LIBOR + .15%, 0.42%, due 05/20/18		     455,149    
USD     514,539     SLM Student Loan Trust, Series 07-A, Class A1, 3 mo. LIBOR + .03%,
0.66%, due 09/15/22		     468,230    
USD     87,218     Structured Asset Securities Corp., Series 05-S6, Class A2,
1 mo. LIBOR + .29%, 0.56%, due 11/25/35		     18,316    
USD     400,000     Swift Master Auto Receivables Trust, Series 07-1, Class A,
1 mo. LIBOR + .10%, 0.37%, due 06/15/12		     372,000    
USD     400,000     Triad Auto Receivables Owner Trust, Series 07-B, Class A4B, FSA,
1 mo. LIBOR + 1.20%, 1.48%, due 07/14/14		     364,000    
USD     500,000     Truck Retail Installment Paper Corp., Series 05-1A, Class A, 144A,
1 mo. LIBOR + .27%, 0.54%, due 12/15/16		     431,301    
USD     800,000     Wachovia Auto Owner Trust, Series 08-A, Class A4B, 1 mo. LIBOR + 1.15%,
1.42%, due 03/20/14		     798,968    
USD     400,000     World Financial Network Credit Card Master Trust, Series 06-A, Class A,
144A, 1 mo. LIBOR + .13%, 0.40%, due 02/15/17		     360,376    
      29,726,013    
        U.S. Government — 16.8%  
USD     22,992,448     U.S. Treasury Inflation Indexed Bond, 0.88%, due 04/15/10 (b)(c)      22,956,534    
USD     10,100,000     U.S. Treasury Receipts, 0.00%, due 02/15/10 * (d)      10,051,862    
USD     10,100,000     U.S. Treasury Receipts, 0.00%, due 02/15/12 * (d)      9,571,240    
USD     10,100,000     U.S. Treasury Receipts, 0.00%, due 08/15/12 * (d)      9,382,232    
      51,961,868    
    Total United States     81,687,881    
    TOTAL DEBT OBLIGATIONS (COST $87,602,888)     88,657,579    
        PREFERRED STOCKS — 0.3%  
        United States — 0.3%  
      10,000     Home Ownership Funding 2 Preferred 144A, 1.00% (d)      900,000    
    TOTAL PREFERRED STOCKS (COST $2,138,851)     900,000    

 

See accompanying notes to the financial statements.


5


GMO Core Plus Bond Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 75.4%  
        United States — 75.4%  
        Affiliated Issuers  
    1,554,673     GMO Emerging Country Debt Fund, Class III     11,970,985    
      7,417,054     GMO Short-Duration Collateral Fund     119,043,719    
      93,858     GMO Special Purpose Holding Fund (e)      59,131    
      2,030,733     GMO U.S. Treasury Fund     50,788,640    
      2,670,704     GMO World Opportunity Overlay Fund     51,704,822    
    Total United States     233,567,297    
    TOTAL MUTUAL FUNDS (COST $268,915,934)     233,567,297    
        SHORT-TERM INVESTMENTS — 1.7%  
        Money Market Funds — 1.7%  
      5,204,902     State Street Institutional Treasury Plus Money Market
Fund-Institutional Class		     5,204,902    
    TOTAL SHORT-TERM INVESTMENTS (COST $5,204,902)     5,204,902    
            TOTAL INVESTMENTS — 106.0%
(Cost $363,862,575)		     328,329,778    
            Other Assets and Liabilities (net) — (6.0%)     (18,565,935 )  
    TOTAL NET ASSETS — 100.0%   $ 309,763,843    

 

See accompanying notes to the financial statements.


6


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  17     Australian Government Bond 10 Yr.   September 2009   $ 1,500,090     $ 9,716    
  29     Australian Government Bond 3 Yr.   September 2009     2,510,125       (22,390 )  
  25     Canadian Government Bond 10 Yr.   December 2009     2,743,000       10,614    
  2     Euro BOBL   September 2009     333,764       1,085    
  4     Euro Bund   September 2009     703,921       7,050    
  26     U.S. Treasury Bond (CBT)   December 2009     3,113,500       16,781    
  20     U.S. Treasury Note 2 Yr. (CBT)   December 2009     4,326,875       9,642    
  16     U.S. Treasury Note 5 Yr. (CBT)   December 2009     1,844,000       7,967    
  36     UK Gilt Long Bond   December 2009     6,951,553       19,774    
                $ 24,026,828     $ 60,239    
Sales      
  36     Japanese Government
Bond 10 Yr. (TSE)		   September 2009   $ 53,993,161     $ (1,004,961 )  
  13     U.S. Treasury Note 10 Yr. (CBT)   December 2009     1,523,844       (8,773 )  
                $ 55,517,005     $ (1,013,734 )  

 

See accompanying notes to the financial statements.


7


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)u 		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  2,000,000     USD   6/20/2011   Barclays   Receive     0.30 %     4.16 %   Prologis     2,000,000     USD   $ (131,216 )  
                Bank PLC                                
  2,000,000     USD   6/20/2011   UBS AG   Receive     0.26 %     2.04 %   ERP
Operating
LP		     2,000,000     USD     (61,611 )  
  2,000,000     USD   12/20/2013   Barclays
Bank PLC		   Receive     0.25 %     11.08 %   SLM Corp.     2,000,000     USD     (611,331 )  
  2,000,000     USD   12/20/2013   UBS AG   Receive     0.34 %     48.25 %   CIT     2,000,000     USD     (1,001,611 )  
    $ (1,805,769 )  
    Premiums to (Pay) Receive   $ —    

 

u  Receive - Fund receives premium and sells credit protection.

(Pay) - Fund pays premium and buys credit protection.

(1)  Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on the reference security, as of August 31, 2009, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider (i.e. higher) credit spreads represent a deterioration of the referenced entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(2)  The maximum potential amount the Fund could be required to make as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)#		   Fixed
Rate		   Variable Rate   Market
Value		  
  15,680,000     USD   8/31/2025   JP Morgan Chase Bank   (Pay)     0.00 %   3 month LIBOR   $ (3,603,690 )  
    $ (3,603,690 )  
    Accretion since inception for zero coupon interest rate swaps   $ 2,071,736    

 

#  Receive - Fund receives fixed rate and pays variable rate.

(Pay) - Fund pays fixed rate and receives variable rate.

See accompanying notes to the financial statements.


8


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Fund Pays   Fund Receives   Market
Value		  
  250,000,000     USD   8/19/2011   Morgan Stanley   3 month   Barclays Capital  
 
                LIBOR - 0.01%   Aggregate Total  
 
                    Return Index (c)    $ 1,569,622    
    $ 1,569,622    
    Premiums to (Pay) Receive   $ —    

 

As of August 31, 2009, 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.

BOBL - Bundesobligationen

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.

TBA - To Be Announced - Delayed Delivery Security

XL - Insured as to the payment of principal and interest by XL Capital Assurance.

The rates shown on variable rate notes are the current interest rates at August 31, 2009, which are subject to change based on the terms of the security.

*  Non-income producing security.

(a)  Security is backed by the U.S. Government.

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

(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)  Underlying investment represents interests in defaulted securities.

Currency Abbreviations:

USD - United States Dollar

See accompanying notes to the financial statements.


9



GMO Core Plus Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $94,946,641) (Note 2)   $ 94,762,481    
Investments in affiliated issuers, at value (cost $268,915,934) (Notes 2 and 8)     233,567,297    
Dividends and interest receivable     97,387    
Receivable from broker for closed futures contracts     31,658    
Interest receivable for open swap contracts     1,008,165    
Receivable for open swap contracts (Note 2)     1,569,622    
Receivable for expenses reimbursed by Manager (Note 3)     13,170    
Total assets     331,049,780    
Liabilities:  
Payable for investments purchased (Note 2):  
Regular delivery     10,510    
Delayed delivery     14,706,250    
Payable to affiliate for (Note 3):  
Management fee     64,810    
Shareholder service fee     28,218    
Trustees and Chief Compliance Officer of GMO Trust fees     640    
Payable for variation margin on open futures contracts (Note 2)     46,381    
Payable for open swap contracts (Note 2)     5,409,459    
Miscellaneous payable     854,313    
Accrued expenses     165,356    
Total liabilities     21,285,937    
Net assets   $ 309,763,843    
Net assets consist of:  
Paid-in capital   $ 514,970,212    
Distributions in excess of net investment income     (11,533,718 )  
Accumulated net realized loss     (155,424,548 )  
Net unrealized depreciation     (38,248,103 )  
    $ 309,763,843    
Net assets attributable to:  
Class III shares   $ 52,756,031    
Class IV shares   $ 257,007,812    
Shares outstanding:  
Class III     7,891,727    
Class IV     38,388,006    
Net asset value per share:  
Class III   $ 6.68    
Class IV   $ 6.70    

 

See accompanying notes to the financial statements.


10


GMO Core Plus Bond Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Interest   $ 2,303,669    
Dividends from affiliated issuers (Note 8)     1,239,202    
Dividends     7,141    
Total investment income     3,550,012    
Expenses:  
Management fee (Note 3)     377,127    
Shareholder service fee – Class III (Note 3)     43,789    
Shareholder service fee – Class IV (Note 3)     121,658    
Custodian, fund accounting agent and transfer agent fees     60,536    
Audit and tax fees     40,664    
Legal fees     11,316    
Trustees fees and related expenses (Note 3)     2,860    
Registration fees     1,380    
Miscellaneous     2,208    
Total expenses     661,538    
Fees and expenses reimbursed by Manager (Note 3)     (109,296 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (21,507 )  
Shareholder service fee waived (Note 3)     (7,935 )  
Net expenses     522,800    
Net investment income (loss)     3,027,212    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (244,889 )  
Investments in affiliated issuers     (6,059,636 )  
Closed futures contracts     (421,549 )  
Closed swap contracts     8,627,017    
Foreign currency, forward contracts and foreign currency related transactions     (1,887 )  
Net realized gain (loss)     1,899,056    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     293,527    
Investments in affiliated issuers     33,227,705    
Open futures contracts     (661,997 )  
Open swap contracts     5,573,278    
Foreign currency, forward contracts and foreign currency related transactions     6,290    
Net unrealized gain (loss)     38,438,803    
Net realized and unrealized gain (loss)     40,337,859    
Net increase (decrease) in net assets resulting from operations   $ 43,365,071    

 

See accompanying notes to the financial statements.


11


GMO Core Plus Bond Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 3,027,212     $ 14,734,532    
Net realized gain (loss)     1,899,056       (109,276,285 )  
Change in net unrealized appreciation (depreciation)     38,438,803       (22,269,265 )  
Net increase (decrease) in net assets from operations     43,365,071       (116,811,018 )  
Distributions to shareholders from:  
Net investment income  
Class III     (2,794,998 )     (16,448,556 )  
Class IV     (12,405,003 )     (65,811,675 )  
Total distributions from net investment income     (15,200,001 )     (82,260,231 )  
Net share transactions (Note 7):  
Class III     (26,313,974 )     (14,545,995 )  
Class IV     242,065       (622,725,935 )  
Increase (decrease) in net assets resulting from net share
transactions		     (26,071,909 )     (637,271,930 )  
Redemption fees (Notes 2 and 7):  
Class III     457       109,302    
Class IV     91,837       514,084    
Increase in net assets resulting from redemption fees     92,294       623,386    
Total increase (decrease) in net assets resulting from net share
transactions and redemption fees		     (25,979,615 )     (636,648,544 )  
Total increase (decrease) in net assets     2,185,455       (835,719,793 )  
Net assets:  
Beginning of period     307,578,388       1,143,298,181    
End of period (including distributions in excess of net investment
income of $11,533,718 and accumulated undistributed net
investment income of $639,071, respectively)		   $ 309,763,843     $ 307,578,388    

 

See accompanying notes to the financial statements.


12



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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 6.08     $ 9.42     $ 10.49     $ 10.32     $ 10.35     $ 10.40    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.07       0.27       0.37       0.43       0.15       0.18    
Net realized and unrealized
gain (loss)		     0.86       (2.08 )     (0.63 )     0.27       0.17       0.24    
Total from investment
operations		     0.93       (1.81 )     (0.26 )     0.70       0.32       0.42    
Less distributions to shareholders:  
From net investment income     (0.33 )     (1.53 )     (0.81 )     (0.53 )     (0.35 )     (0.25 )  
From net realized gains     —       —       —       —       —       (0.22 )  
Total distributions     (0.33 )     (1.53 )     (0.81 )     (0.53 )     (0.35 )     (0.47 )  
Net asset value, end of period   $ 6.68     $ 6.08     $ 9.42     $ 10.49     $ 10.32     $ 10.35    
Total Return(b)      15.57 %**     (20.12 )%     (2.56 )%     6.85 %     3.10 %     4.01 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 52,756     $ 73,730     $ 125,506     $ 187,045     $ 148,476     $ 1,216,251    
Net expenses to average daily
net assets(c) 		     0.39 %*     0.39 %(d)      0.39 %(d)      0.39 %     0.39 %     0.39 %  
Net investment income to
average daily net assets(a) 		     2.06 %*     3.20 %     3.70 %     4.11 %     1.40 %     1.77 %  
Portfolio turnover rate     8 %**     22 %     44 %     72 %     62 %     108 %  
Fees and expenses reimbursed
and/or waived by the Manager
to average daily net assets:		     0.09 %*     0.08 %     0.06 %     0.06 %     0.06 %     0.07 %  
Redemption fees consisted of the
following per share amounts:† 		   $ 0.00 (e)    $ 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 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)  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.


13


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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006(a)   
Net asset value, beginning of period   $ 6.09     $ 9.44     $ 10.50     $ 10.33     $ 10.46    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.06       0.17       0.36       0.45       0.23    
Net realized and unrealized gain (loss)     0.88       (1.99 )     (0.61 )     0.26       (0.01 )(c)   
Total from investment operations     0.94       (1.82 )     (0.25 )     0.71       0.22    
Less distributions to shareholders:  
From net investment income     (0.33 )     (1.53 )     (0.81 )     (0.54 )     (0.35 )  
Total distributions     (0.33 )     (1.53 )     (0.81 )     (0.54 )     (0.35 )  
Net asset value, end of period   $ 6.70     $ 6.09     $ 9.44     $ 10.50     $ 10.33    
Total Return(d)      15.77 %**     (20.23 )%     (2.42 )%     6.90 %     2.06 %**  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 257,008     $ 233,848     $ 1,017,792     $ 2,182,618     $ 2,618,011    
Net expenses to average daily net assets(e)      0.34 %*     0.34 %(f)      0.34 %(f)      0.34 %     0.34 %*  
Net investment income to average
daily net assets(b) 		     1.99 %*     1.89 %     3.60 %     4.33 %     2.16 %(g)   
Portfolio turnover rate     8 %**     22 %     44 %     72 %     62 %††   
Fees and expenses reimbursed and/or
waived by the Manager to average
daily net assets:		     0.09 %*     0.08 %     0.06 %     0.06 %     0.07 %*  
Redemption fees consisted of the
following per share amounts:† 		   $ 0.00 (h)    $ 0.01       —       —       —    

 

(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 the periods shown and assumes the effect of reinvested distributions. Calculation excludes 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)  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.

(h)  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, 2006.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


14



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Core Plus Bond Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 Barclays Capital U.S. Aggregate Index (formerly Lehman Brothers U.S. Aggregate Index). The Fund typically invests in bonds included in the Barclays Capital 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, sectors, and credit, currency, and emerging country debt markets. The Fund may implement its strategies: (i) synthetically by using exchange-traded and over-the-counter ("OTC") derivatives and investing in other series of the Trust and/or (ii) directly by purchasing bonds denominated in various currencies. The Fund has historically gained its investment exposure primarily through the use of derivatives and investments in other series of the Trust. The Fund has substantial holdings of GMO Short-Duration Collateral Fund ("SDCF") (a Fun d that invests primarily in asset-backed securities) and GMO World Opportunity Overlay Fund ("Overlay Fund") (a Fund that invests in asset-backed securities and uses derivatives to attempt to exploit misvaluations in world interest rates, currencies and credit markets). Under normal circumstances, the Fund invests (directly and indirectly through other series of the Trust) at least 80% of its assets in bonds. For these purposes, the term "bonds" includes (i) obligations of an issuer to make payments of principal and/or interest on future dates and (ii) synthetic debt instruments created by the Manager by using a futures contract, swap contract, currency forward or option. To implement its investment strategies, the Fund may invest in or hold: 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; derivatives, including without limitation, futures contracts, currency options, currency forwards, credit default swaps and other swap contracts (to gain exposure to the global interest rate, credit, and currency markets); shares of SDCF (to gain exposure to asset-backed securities); shares of Overlay Fund (to attempt to exploit misvaluations in world interest rates, currencies, and credit markets); shares of GMO Emerging Country Debt Fund ("ECDF") (to gain exposure to sovereign debt of emerging countries); and shares of GMO U.S. Treasury Fund (for liquidity management purposes). Because of the deterioration in credit markets that became acute in 2008, the Fund through its investment in SDCF and Overlay Fund currently holds and may continue to hold material positions of below investment grade securities. This is in addition to the Fund's emerging country debt investments. The Fund also may invest in unaffiliat ed money market funds.

Throughout the year ended August 31, 2009, the Fund had two classes of shares outstanding: Class III and Class IV. Each class of shares bears a different shareholder service fee.


15


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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). As of August 31, 2009, shares of SDCF, Overlay Fund and GMO Special Purpose Holding Fund ("SPHF") were not publicly available for direct purchase.

From prior to March 1, 2009 through July 12, 2009, the Fund had a policy to effect redemptions of its shares in-kind above de minimis levels. The Fund had established de minimis amounts below which redemptions would be honored for cash. Beginning July 13, 2009, the Fund had a policy to pay redemption requests with cash (less a redemption fee).

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.

As of August 31, 2009, a significant portion of the Fund's dividends received from other GMO funds is expected to be a return of capital for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" reported in the Statement of Operations has been reduced by the portion estimated to be a return of capital as of August 31, 2009. The estimated return of capital is $25,374,880. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the estimated return of capital. The dividends from affiliated issuers are subject to change and will not be finalized until February 28, 2010, the Fund's upcoming fiscal year-end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to


16


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 24.73% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund valued certain debt securities using indicative bids received from primary pricing sources. The Fund also utilized third party valuation services (which use industry standard models and inputs from pricing vendors) to value credit default swaps. The Fund valued certain debt securities and preferred stocks using a specified spread above the LIBOR Rate or U.S. Treasury yield.


17


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Debt Obligations  
Asset-Backed Securities   $ —     $ 1,382,284     $ 30,422,107     $ 31,804,391    
Foreign Government Obligations     —       4,891,320       —       4,891,320    
U.S. Government     —       22,956,534       29,005,334       51,961,868    
TOTAL DEBT OBLIGATIONS     —       29,230,138       59,427,441       88,657,579    
Preferred Stocks     —       —       900,000       900,000    
Mutual Funds     62,759,625       170,807,672       —       233,567,297    
Short-Term Investments     —       5,204,902       —       5,204,902    
Total Investments     62,759,625       205,242,712       60,327,441       328,329,778    
Derivatives  
Futures Contracts     82,629       —       —       82,629    
Swap Agreements     —       1,569,622       —       1,569,622    
Total   $ 62,842,254     $ 206,812,334     $ 60,327,441     $ 329,982,029    

 

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical
Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Futures Contracts   $ (1,036,124 )   $ —     $ —     $ (1,036,124 )  
Swap Agreements     —       (3,603,690 )     (1,805,769 )     (5,409,459 )  
Total   $ (1,036,124 )   $ (3,603,690 )   $ (1,805,769 )   $ (6,445,583 )  

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (both direct and indirect) in


18


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

securities and other financial instruments using Level 3 inputs were 64.52% and (0.70)% of total net assets, respectively.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out of
Level 3		   Balances
as of
August 31,
2009		  
Debt Obligations  
Asset-Backed
Securities		   $ 18,048,446     $ 11,178,985     $ 278,593     $ 106,508     $ 2,191,859     $ (1,382,284 )   $ 30,422,107    
Foreign
Government
Obligations		     7,114,707       (593,320 )     164,760       94,910       (1,889,737 )     (4,891,320 )     —    
U.S.
Government		     28,721,524       (194,112 )     883,023       238       (405,339 )     —       29,005,334    
Total Debt
Obligations		     53,884,677       10,391,553       1,326,376       201,656       (103,217 )     (6,273,604 )     59,427,441    
Preferred Stocks     900,000       —       —       —       —       —       900,000    
Swap Agreements     (2,225,744 )     (41,615 )     —       41,615       419,975       —       (1,805,769 )  
Mutual Funds     68,517       —       —       —       (9,386 )     (59,131 )     —    
Total   $ 52,627,450     $ 10,349,938     $ 1,326,376     $ 243,271     $ 307,372     $ (6,332,735 )   $ 58,521,672    

 

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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The


19


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying


20


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written 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 options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with


21


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exposure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly


22


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. The Fund had no reverse repurchase agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants at the end of the period.

Delayed delivery securities

The Fund may enter into firm commitments and similar agreements with banks or broker-dealers for the purchase or sale of securities at an agreed-upon price on a specified future date. For example, when the Fund invests in fixed-income securities it may enter into a firm commitment agreement if the Manager anticipates a decline in interest rates and believes it is able to obtain a more advantageous future yield by committing currently to purchase securities to be issued later. The Fund generally does not earn income on the securities it has committed to purchase until after delivery. The Fund may take delivery of the securities or, if deemed advisable as a matter of investment strategy, may sell the securities before the settlement date. When payment is due on when-issued or delayed-delivery securities, the Fund makes payment from then-available cash flow or the sale of securities, or from the sale of the when-issued or delayed-d elivery securities themselves (which may have a value greater or less than what the Fund paid for them).


23


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 carryforwards 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. The Fund is permitted to, and will from time to time, declare and pay distributions from net investment income, if any, more frequently (e.g., monthly). 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $16,579,574.

As of February 28, 2009, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Such losses expire as follows:

2/28/2014   $ (34,693,380 )  
2/28/2015     (2,795,728 )  
2/29/2016     (33,008,915 )  
2/28/2017     (59,218,431 )  
Total   $ (129,716,454 )  

 

Utilization of the capital loss carryforwards, post-October capital losses and future losses, if any, realized subsequent to February 28, 2009, could be subject to limitations imposed by the Code related to share ownership activity.


24


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 380,775,063     $ 3,393,819     $ (55,839,104 )   $ (52,445,285 )  

 

For the period ended August 31, 2009, the Fund had net realized losses attributed to redemption in-kind transactions of $6,127,856.

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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 incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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


25


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

cash balances the Fund maintains with State Street. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through August 2, 2009, the fee on cash redemptions was 2.00% of the amount redeemed. From August 3, 2009 through August 31, 2009, the fee on cash redemptions was 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relat ing to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value, and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security will be unable or unwilling to make timely principal, interest, or settlement payments or otherwise honor its obligations. This risk is particularly pronounced for


26


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the Fund because it typically uses OTC derivatives, including swap contracts with longer-term maturities, and may have significant exposure to a single counterparty. The risk of counterparty default is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. The Fund may be required to sell certain less liquid securities at distressed prices or meet redemption requests in-kind. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular the asset-backed securities held by the Fund through SDCF and Overlay Fund.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in underlying funds, including the risk that the underlying funds in which it invests will not perform as expected.

Other principal risks of an investment in the Fund include Foreign Investment Risk (risk that the market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Leveraging Risk (increased risks from use of reverse repurchase agreeme nts and other derivatives and securities lending), Currency Risk (risk that fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies), Focused Investment Risk (increased risk from the Fund's focus on investments in countries, regions, or sectors with high positive correlations to one another), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified. Certain of the above-referenced risks will be more pronounced for the Fund as a result of its investment in ECDF. For more information about reverse repurchase agreements and other derivatives, please refer to the descriptions of financial instruments (e.g. reverse repurchase agreements, swaps, futures and other types of derivative contracts) in Note 2 above as well as the discussion of the Fund's use of derivatives below.

The Fund's investments in many countries and credit default swaps it has written expose the Fund to a significant risk of loss. The Fund's financial position could be adversely affected (depending on whether the Fund sold or bought the credit protection) in the event of a default by any of these countries on obligations held by the Fund, obligations referenced in those credit default swaps or obligations issued by them generally.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages,


27


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of underlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, i f any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underl ying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

The Fund uses its cash balance to meet its collateral obligations and for other purposes. There is no assurance that the Fund's cash balance will be sufficient to meet those obligations. If it is not, the Fund would be required to liquidate portfolio positions. To manage the Fund's cash collateral needs, the Manager reserves the right to reduce or eliminate the Fund's derivative exposures. A reduction in those exposures may cause the performance of the 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.


28


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Among other trading agreements, the Fund is party to International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Agreements") with select counterparties that generally govern over-the-counter derivative transactions entered into by the Fund. The ISDA Master Agreements typically include representations and warranties as well as contractual terms related to collateral, events of default, termination events, and other provisions. Termination events include the decline in the net assets of the Fund below a certain level over a specified period of time and entitle a counterparty to elect to terminate early with respect to some or all the transactions under the ISDA Agreement with that counterparty. Such an election by one or more of the counterparties could have a material adverse impact on the Fund's operations. Due to declines in the net assets of the Fund prior to August 31, 2009, one or more counterparties are entitled to terminate early but none has taken such action.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund uses derivatives as a substitute for direct investment in securities or other assets. In particular, the Fund may use swaps (including credit default swaps) or other derivatives on an index, a single security or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.


29


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.


30


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts* 		     82,629       —       —       —       —       82,629    
Unrealized appreciation on
forward currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on
swap agreements		     1,569,622       —       —       —       —       1,569,622    
Total   $ 1,652,251       —       —       —       —     $ 1,652,251    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     (1,036,124 )     —       —       —       —       (1,036,124 )  
Unrealized depreciation on
forward currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on
swap agreements		     (3,603,690 )     —       (1,805,769 )     —       —       (5,409,459 )  
Total   $ (4,639,814 )   $ —     $ (1,805,769 )   $ —     $ —     $ (6,445,583 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


31


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     (421,549 )     —       —       —       —       (421,549 )  
Swap contracts     8,585,402       —       41,615       —       —       8,627,017    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ 8,163,853     $ —     $ 41,615     $ —     $ —     $ 8,205,468    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     (661,997 )     —       —       —       —       (661,997 )  
Swap contracts     5,153,303       —       419,975       —       —       5,573,278    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ 4,491,306     $ —     $ 419,975     $ —     $ —     $ 4,911,281    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures   Swaps  
Average notional amount outstanding   $ 72,857,483     $ 298,894,286    
Highest notional amount outstanding     92,875,111       308,980,000    
Lowest notional amount outstanding     25,321,719       273,680,000    

 

Other matters

SPHF, an investment of the Fund, has litigation pending against various entities related to the 2002 default of securities previously held by SPHF. The outcome of the lawsuits against the remaining defendants is not known and any potential recoveries are not reflected in the net asset value of SPHF. For the period ended


32


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

August 31, 2009, the Fund received no distributions through SPHF in connection with settlement agreements related to that litigation.

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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 0.10% 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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses); (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's Excluded Fund Fees and Expenses); and (c) the amount of fees and expenses incurred indirectly (through investment in other underlying funds) by the Fund through its (direct or indirect) investment in GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to such Fund equ al to 0.25% of the Fund's average daily net assets.


33


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2009, 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		  
  0.026 %     0.005 %     0.009 %     0.040 %  

 

        

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, 2009 was $2,492 and $1,472, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.

4.  Purchases and sales of securities

For the period ended August 31, 2009, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ 29,626,563     $ 14,761,914    
Investments (non-U.S. Government securities)     58,853,309       10,366,031    

 

Proceeds from sales of securities for in-kind transactions for the period ended August 31, 2009 were $18,536,561.

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


34


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 89.58% 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.

As of August 31, 2009, 0.02% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 44.53% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,879     $ 11,529       4,083     $ 29,086    
Shares issued to shareholders
in reinvestment of distributions		     79,441       506,587       2,426,853       16,389,522    
Shares repurchased     (4,313,749 )     (26,832,090 )     (3,624,307 )     (30,964,603 )  
Redemption fees     —       457       —       109,302    
Net increase (decrease)     (4,232,429 )   $ (26,313,517 )     (1,193,371 )   $ (14,436,693 )  
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     735,754     $ 4,833,902       564,334     $ 5,000,000    
Shares issued to shareholders
in reinvestment of distributions		     —       —       9,197,631       65,811,675    
Shares repurchased     (726,753 )     (4,591,837 )     (79,246,156 )     (693,537,610 )  
Redemption fees     —       91,837       —       514,084    
Net increase (decrease)     9,001     $ 333,902       (69,484,191 )   $ (622,211,851 )  

 


35


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 9,619,580     $ 183,854     $ 717,356     $ 183,854     $ —     $ 11,970,985    
GMO Short-Duration
Collateral Fund		     136,464,740       —       9,109,208       985,893       —       119,043,719    
GMO Special Purpose
Holding Fund		     68,517       —       —       —       —       59,131    
GMO U.S. Treasury Fund     —       58,669,455       7,900,000       69,455       —       50,788,640    
GMO World Opportunity
Overlay Fund		     52,729,622       —       3,756,694       —       —       51,704,822 o   
Totals   $ 198,882,459     $ 58,853,309     $ 21,483,258     $ 1,239,202     $ —     $ 233,567,297    

 

o  The Fund received return of capital distributions in the amount of $4,478,401.

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. On September 14, 2009, the Fund's redemption fee was eliminated.


36



GMO Core Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered information provided by the Manager addressing the Fund's performance, including a performance attribution analysis. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those p ersonnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

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


37


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

concerning fees paid to managers of funds deemed by those services to have similar objectives. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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. The Trustees noted 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 M anager effectively reimburses the Fund for advisory fees, shareholder fees and most other expenses of the underlying funds 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.


38


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


39


GMO Core Plus Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including 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, 2009 through August 31, 2009.

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     0.43 %   $ 1,000.00     $ 1,155.70     $ 2.34    
2) Hypothetical     0.43 %   $ 1,000.00     $ 1,023.04     $ 2.19    
Class IV      
1) Actual     0.38 %   $ 1,000.00     $ 1,157.70     $ 2.07    
2) Hypothetical     0.38 %   $ 1,000.00     $ 1,023.29     $ 1.94    

 

*  Expenses are calculated using each Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


40



GMO Global Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     92.0 %  
Short-Term Investments     8.7    
Options Purchased     2.3    
Futures     0.8    
Forward Currency Contracts     0.3    
Loan Participations     0.2    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Swaps     (0.5 )  
Written Options     (0.7 )  
Reverse Repurchase Agreements     (2.5 )  
Other     (0.7 )  
      100.0 %  
Country/Region Summary**   % of Investments  
Euro Region***     40.6 %  
United States     21.9    
Japan     14.7    
United Kingdom     12.0    
Emerging****     4.6    
Canada     3.4    
Australia     2.3    
Sweden     0.5    
      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 table is based on duration-adjusted exposures, taking into account the market value of securities and the notional amounts of swaps and other derivative contracts. Duration is based on the Manager's models. The greater the duration of a bond, the greater its contribution to the concentration percentage. Credit default swap exposures (both positive and negative) are factored into the duration-adjusted exposure using the reference security and applying the same methodology to that security.

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

****  The "Emerging" exposure is associated with investments in the GMO Emerging Country Debt Fund, which is exposed to emerging countries primarily comprised of Russia, Argentina, Brazil, Philippines, Mexico, Venezuela, Colombia, Uruguay, Turkey, and Indonesia. Additional information about the fund's emerging country exposure is available in the financial statements of the GMO Emerging Country Debt Fund.


1



GMO Global Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value   Description   Value ($)  
        DEBT OBLIGATIONS — 17.4%  
        Canada — 0.7%  
        Foreign Government Obligations  
CAD     1,500,000     Government of Canada, 8.00%, due 06/01/23     1,976,109    
        France — 2.6%  
        Foreign Government Obligations  
EUR     5,000,000     Government of France, 4.00%, due 10/25/38     7,038,972    
        Germany — 2.9%  
        Foreign Government Obligations  
EUR     5,000,000     Republic of Deutschland, 4.75%, due 07/04/34 (a)      7,907,734    
        Japan — 2.8%  
        Foreign Government Obligations  
JPY     700,000,000     Japan Government Twenty Year Bond, 2.20%, due 06/20/26     7,800,204    
        United Kingdom — 2.5%  
        Foreign Government Obligations  
GBP     4,000,000     U.K. Treasury Gilt, 4.25%, due 12/07/27     6,810,046    
        United States — 5.9%  
        U.S. Government  
USD     7,284,736     U.S. Treasury Inflation Indexed Bond, 0.88%, due 04/15/10 (a) (b)      7,273,357    
USD     15,000,000     U.S. Treasury Principal Strip Bond, due 11/15/21     8,980,965    
    Total United States     16,254,322    
    TOTAL DEBT OBLIGATIONS (COST $48,137,470)     47,787,387    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 79.7%  
        United States — 79.7%  
        Affiliated Issuers  
    1,345,355     GMO Emerging Country Debt Fund, Class III     10,359,235    
    9,323,457     GMO Short-Duration Collateral Fund     149,641,482    
    45,838     GMO Special Purpose Holding Fund (c)      28,878    
    432,545     GMO U.S. Treasury Fund     10,817,950    
    2,522,448     GMO World Opportunity Overlay Fund     48,834,585    
    Total United States     219,682,130    
    TOTAL MUTUAL FUNDS (COST $265,742,457)     219,682,130    
        SHORT-TERM INVESTMENTS — 2.8%  
        Money Market Funds — 2.8%  
    7,721,269     State Street Institutional Treasury Plus Money Market Fund-Institutional Class     7,721,269    
    TOTAL SHORT-TERM INVESTMENTS (COST $7,721,269)     7,721,269    
          TOTAL INVESTMENTS — 99.9%
(Cost $321,601,196)		     275,190,786    
          Other Assets and Liabilities (net) — 0.1%     352,965    
    TOTAL NET ASSETS — 100.0%   $ 275,543,751    

 

See accompanying notes to the financial statements.


3


GMO Global Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys †  
9/01/09   AUD     800,000     $ 676,160     $ 52,160    
10/20/09   AUD     800,000       673,605       8,805    
9/08/09   CAD     2,700,000       2,466,364       51,337    
10/06/09   EUR     50,400,000       72,255,728       (297,088 )  
9/15/09   GBP     4,500,000       7,325,547       (97,203 )  
10/13/09   JPY     5,434,000,000       58,415,182       1,020,039    
    $ 141,812,586     $ 738,050    
Sales #  
9/01/09   AUD     800,000     $ 676,160     $ (8,880 )  

 

†  Fund buys foreign currency; sells USD.

#  Fund sells foreign currency; buys USD.

Forward Cross Currency Contracts

Settlement
Date		   Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation
(Depreciation)		  
  9/22/09       EUR       1,200,000       SEK       12,540,000     $ 41,392    

 

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  34     Australian Government Bond 3 Yr.   September 2009   $ 2,942,905     $ (27,432 )  
  20     Australian Government Bond 10 Yr.   September 2009     1,764,812       9,895    
  39     Canadian Government Bond 10 Yr.   December 2009     4,279,080       16,557    
  162     Euro BOBL   September 2009     27,034,878       427,499    
  180     Euro Bund   September 2009     31,676,433       1,012,798    
  14     Japanese Government Bond 10 Yr. (TSE)   September 2009     20,997,340       451,191    

 

See accompanying notes to the financial statements.


4


GMO Global Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Futures Contracts — continued

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
  33     U.S. Treasury Bond (CBT)   December 2009   $ 3,951,750     $ 21,299    
  137     U.S. Treasury Note 5 Yr. (CBT)   December 2009     15,789,250       68,216    
  104     U.S. Treasury Note 2 Yr. (CBT)   December 2009     22,499,750       50,140    
  47     U.S. Treasury Note 10 Yr. (CBT)   December 2009     5,509,281       31,437    
  72     UK Gilt Long Bond   December 2009     13,903,107       39,549    
                $ 150,348,586     $ 2,101,149    

 

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  21,000,000     USD   3/20/2014   Deutsche   (Pay)     1.70 %     0.71 %   Republic of   N/A     $ (960,257 )  
            Bank AG         Italy        
  15,000,000     USD   3/20/2019   Deutsche
Bank AG 		  Receive     1.66 %     0.77 %   Republic of
Italy		     15,000,000     USD     1,109,783    
    $ 149,526    
    Premiums to (Pay) Receive   $ —    

 

^  Receive - Fund receives premium and sells credit protection.
  (Pay) - Fund pays premium and buys credit protection.

(1)  Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on the reference security, as of August 31, 2009, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider (i.e. higher) credit spreads represent a deterioration of the referenced entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(2)  The maximum potential amount the Fund could be required to make as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

See accompanying notes to the financial statements.


5


GMO Global Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, 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:

BOBL - Bundesobligationen

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

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

(c)  Underlying investment represents interests in defaulted securities.

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

EUR - Euro

GBP - British Pound

JPY - Japanese Yen

SEK - Swedish Krona

USD - United States Dollar

See accompanying notes to the financial statements.


6



GMO Global Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $55,858,739) (Note 2)   $ 55,508,656    
Investments in affiliated issuers, at value (cost $265,742,457) (Notes 2 and 8)     219,682,130    
Dividends and interest receivable     451,029    
Unrealized appreciation on open forward currency contracts (Note 2)     1,173,733    
Receivable for variation margin on open futures contracts (Note 2)     2,601,374    
Receivable for open swap contracts (Note 2)     1,109,783    
Receivable for expenses reimbursed by Manager (Note 3)     5,704    
Total assets     280,532,409    
Liabilities:  
Foreign currency due to custodian     41,403    
Payable for investments purchased     1,001,763    
Payable to affiliate for (Note 3):  
Management fee     43,522    
Shareholder service fee     34,360    
Trustees and Chief Compliance Officer of GMO Trust fees     593    
Payable to broker for closed futures contracts     2,409,615    
Unrealized depreciation on open forward currency contracts (Note 2)     403,171    
Payable for open swap contracts (Note 2)     960,257    
Accrued expenses     93,974    
Total liabilities     4,988,658    
Net assets   $ 275,543,751    
Net assets consist of:  
Paid-in capital   $ 345,837,206    
Distributions in excess of net investment income     (8,179,596 )  
Accumulated net realized loss     (18,702,928 )  
Net unrealized depreciation     (43,410,931 )  
    $ 275,543,751    
Net assets attributable to:  
Class III shares   $ 275,543,751    
Shares outstanding:  
Class III     38,384,728    
Net asset value per share:  
Class III   $ 7.18    

 

See accompanying notes to the financial statements.


7


GMO Global Bond Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 1,388,565    
Interest     904,998    
Dividends     2,551    
Total investment income     2,296,114    
Expenses:  
Management fee (Note 3)     257,615    
Shareholder service fee – Class III (Note 3)     203,380    
Custodian, fund accounting agent and transfer agent fees     62,008    
Audit and tax fees     33,396    
Legal fees     7,360    
Trustees fees and related expenses (Note 3)     2,799    
Registration fees     1,840    
Miscellaneous     2,574    
Total expenses     570,972    
Fees and expenses reimbursed by Manager (Note 3)     (22,518 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (18,375 )  
Shareholder service fee waived (Note 3)     (6,783 )  
Net expenses     523,296    
Net investment income (loss)     1,772,818    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     4,196    
Closed futures contracts     (2,783,899 )  
Closed swap contracts     (42,600 )  
Foreign currency, forward contracts and foreign currency related transactions     2,555,547    
Net realized gain (loss)     (266,756 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     3,500,637    
Investments in affiliated issuers     30,672,441    
Open futures contracts     2,132,200    
Open swap contracts     180,031    
Foreign currency, forward contracts and foreign currency related transactions     9,983,521    
Net unrealized gain (loss)     46,468,830    
Net realized and unrealized gain (loss)     46,202,074    
Net increase (decrease) in net assets resulting from operations   $ 47,974,892    

 

See accompanying notes to the financial statements.


8


GMO Global Bond Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,772,818     $ 10,078,365    
Net realized gain (loss)     (266,756 )     3,335,224    
Change in net unrealized appreciation (depreciation)     46,468,830       (90,848,938 )  
Net increase (decrease) in net assets from operations     47,974,892       (77,435,349 )  
Distributions to shareholders from:  
Net investment income  
Class III     (9,545,648 )     (19,772,881 )  
Return of capital  
Class III     (4,954,352 )     —    
      (14,500,000 )     (19,772,881 )  
Net share transactions (Note 7):  
Class III     (20,058,960 )     20,286,078    
Redemption fees (Notes 2 and 7):  
Class III     421,557       13,923    
Total increase (decrease) in net assets resulting from net share
transactions and redemption fees		     (19,637,403 )     20,300,001    
Total increase (decrease) in net assets     13,837,489       (76,908,229 )  
Net assets:  
Beginning of period     261,706,262       338,614,491    
End of period (including distributions in excess of net investment
income of $8,179,596 and $406,766, respectively)		   $ 275,543,751     $ 261,706,262    

 

See accompanying notes to the financial statements.


9



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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 6.33     $ 8.70     $ 8.92     $ 8.53     $ 9.11     $ 8.73    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.04       0.25       0.42       0.38       0.18       0.21    
Net realized and unrealized gain
(loss)		     1.17       (2.11 )     0.11       0.38       (0.57 )     0.63    
Total from investment
operations		     1.21       (1.86 )     0.53       0.76       (0.39 )     0.84    
Less distributions to shareholders:  
From net investment income     (0.24 )     (0.51 )     (0.75 )     (0.37 )     (0.19 )     (0.46 )  
From return of capital     (0.12 )     —       —       —       —       —    
Total distributions     (0.36 )     (0.51 )     (0.75 )     (0.37 )     (0.19 )     (0.46 )  
Net asset value, end of period   $ 7.18     $ 6.33     $ 8.70     $ 8.92     $ 8.53     $ 9.11    
Total Return(b)      19.62 %**      (22.77 )%     6.50 %     8.99 %     (4.33 )%     9.52 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 275,544     $ 261,706     $ 338,614     $ 185,321     $ 168,324     $ 170,750    
Net expenses to average daily net
assets(c) 		     0.39 %*      0.39 %(d)      0.38 %(d)      0.39 %     0.37 %     0.33 %  
Net investment income to average
daily net assets(a) 		     1.31 %*      3.24 %     4.86 %     4.33 %     2.12 %     2.40 %  
Portfolio turnover rate     5 %**      35 %     20 %     22 %     20 %     38 %  
Fees and expenses reimbursed
and/or waived by the Manager
to average daily net assets:		     0.04 %*      0.03 %     0.03 %     0.06 %     0.07 %     0.12 %  
Redemption fees consisted of the
following per share amounts:† 		   $ 0.01     $ 0.00 (e)      —       —       —       —    

 

(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)  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.


10



GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Global Bond Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 J.P. Morgan Global Government Bond Index. The Fund typically invests in bonds included in the J.P. Morgan 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, sectors, and credit, currency, and emerging country debt markets. The Fund may implement its strategies: (i) synthetically by using exchange-traded and over-the-counter ("OTC") derivatives and investing in other series of the Trust and/or (ii) directly by purchasing bonds denominated in various currencies. The Fund has historically gained its investment exposure primarily through the use of derivatives and investments in other series of the Trust. As a result, the Fund has substantial holdings of GMO Short-Duration Collateral Fund ("SDCF") (a Fund that invests primarily in a sset-backed securities) and GMO World Opportunity Overlay Fund ("Overlay Fund") (a Fund that invests in asset-backed securities and uses derivatives to attempt to exploit misvaluations in world interest rates, currencies and credit markets). Under normal circumstances, the Fund invests (directly or indirectly through investment in other series of the Trust) at least 80% of its assets in bonds. For these purposes, the term "bonds" includes (i) obligations of an issuer to make payments of principal and/or interest on future dates and (ii) synthetic debt instruments created by the Manager by using a futures contract, swap contract, currency forward or option. To implement its investment strategies, the Fund may invest in or hold: 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 bond s, and mortgage-backed and other asset-backed securities issued by private issuers; derivatives, including without limitation, futures contracts, currency options, currency forwards, credit default swaps and other swap contracts (to gain exposure to the global interest rate, credit, and currency markets); shares of SDCF (to gain exposure to asset-backed securities); shares of Overlay Fund (to attempt to exploit misvaluations in world interest rates, currencies, and credit markets); shares of GMO Emerging Country Debt Fund ("ECDF") (to gain exposure to sovereign debt of emerging countries); and shares of GMO U.S. Treasury Fund (for liquidity management purposes). Because of the deterioration in credit markets that became acute in 2008, the Fund through its investment in SDCF and Overlay Fund currently holds and may continue to hold material positions of below investment grade securities. This is in addition to the Fund's emerging country debt investments. The Fund also may invest in unaffiliated money market funds.


11


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 fininacial statements are available, without charge, upon request by calling (617) 346-7646 (collect). As of August 31, 2009, shares of SDCF, GMO Special Purpose Holding Fund ("SPHF") and Overlay Fund were not publicly available for direct purchase.

From March 1, 2009 through July 12, 2009, the Fund had a policy to effect redemptions of its shares in-kind above de minimis levels. The Fund had established de minimis amounts below which redemptions would be honored for cash. Beginning July 13, 2009, the Fund had a policy to pay redemption requests with cash (less redemption 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.

As of August 31, 2009, a significant portion of the Fund's dividends received from other GMO funds is expected to be a return of capital for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" reported in the Statement of Operations has been reduced by the portion estimated to be a return of capital as of August 31, 2009. The estimated return of capital is $31,228,246. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the estimated return of capital. Furthermore, the "distributions to shareholders from return of capital" disclosed in the Statement of Changes in Net Assets and Financial Highlights are also estimates as of August 31, 2009. Both the dividends from affiliated issuers and distributions to shareholders from return of capital are subject to change and will not be finalized until February 28, 2010, the Fund's upcoming fiscal year - -end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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.


12


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 20.46% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund utilized third party valuation services (which use industry standard models and inputs from pricing vendors) to value credit default swaps.


13


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Debt Obligations  
Foreign Government Obligations   $ —     $ 47,787,387     $ —     $ 47,787,387    
TOTAL DEBT OBLIGATIONS     —       47,787,387       —       47,787,387    
Mutual Funds     21,177,185       198,504,945       —       219,682,130    
Short-Term Investments           7,721,269       —       7,721,269    
Total Investments     21,177,185       254,013,601       —       275,190,786    
Derivatives  
Forward Currency Contracts     —       1,173,733       —       1,173,733    
Futures Contracts     2,128,581       —       —       2,128,581    
Swap Agreements     —       —       1,109,783       1,109,783    
Total   $ 23,305,766     $ 255,187,334     $ 1,109,783     $ 279,602,883    

 

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical
Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Forward Currency Contracts   $ —     $ (403,171 )   $ —     $ (403,171 )  
Futures Contracts     (27,432 )     —       —       (27,432 )  
Swap Agreements     —       —       (960,257 )     (960,257 )  
Total   $ (27,432 )   $ (403,171 )   $ (960,257 )   $ (1,390,860 )  

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (both direct and indirect ) in securities and other financial instruments using Level 3 inputs were 58.48% and (0.09)% of total net assets, respectively.


14


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Mutual Funds   $ 33,462     $ —     $ —     $ —     $ (4,584 )   $ (28,878 )   $ —    
Swaps Agreements     (30,505 )     (42,660 )     —       42,660       180,031       —       149,526    
Total   $ 2,957     $ (42,660 )   $ —     $ 42,660     $ 175,447     $ (28,878 )   $ 149,526    

 

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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


15


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.


16


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written 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 options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a


17


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. 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, 2009 (Unaudited)

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. The Fund had no reverse repurchase agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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. The Fund is permitted to, and will from time to time, declare and pay distributions from net investment income, if any, more frequently (e.g. monthly). 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


19


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $7,106,783.

As of February 28, 2009, 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   $ (7,601,799 )  
2/28/2014     (7,575,780 )  
2/28/2015     (269,796 )  
2/28/2017     (4,412,277 )  
Total   $ (19,859,652 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 322,965,745     $ 1,231,387     $ (49,006,346 )   $ (47,774,959 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to


20


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through August 2, 2009, the fee on cash redemptions was 2.00% of the amount redeemed. From August 3, 2009 through August 31, 2009, the fee on cash redemptions was 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relat ing to a cash purchase or redemption of the Fund's shares if the


21


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases an d redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value, and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. The Fund may be required to sell certain less liquid securities at distressed prices or meet redemption requests in-kind. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular the asset-backed securities held by the Fund through SDCF and Overlay Fund.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security, will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise honor its obligations. This risk is particularly pronounced for the Fund because it typically uses OTC derivatives, including swap contracts with longer-term maturities, and may have significant exposure to a single counterparty. The risk of counterparty default is


22


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in underlying funds, including the risk that the underlying funds in which it invests will not perform as expected.

Other principal risks of an investment in the Fund include Foreign Investment Risk (risk that the market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Leveraging Risk (increased risks from use of reverse repurchase agreeme nts and other derivatives and securities lending), Focused Investment Risk (increased risk from the Fund's to focus on investments in countries, regions, or sectors with high positive correlations to one another), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified. Certain of the above-referenced risks will be more pronounced for the Fund as a result of its investment in ECDF. For more information about reverse repurchase agreements and other derivatives, please refer to the descriptions of financial instruments (e.g. reverse repurchase agreements, swaps, futures and other types of derivative contracts) in Note 2 above as well as the discussion of the Fund's use of derivatives below.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of u nderlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in


23


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underl ying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

The Fund uses its cash balance to meet its collateral obligations and for other purposes. There is no assurance that the Fund's cash balance will be sufficient to meet those obligations. If it is not, the Fund would be required to liquidate portfolio positions. To manage the Fund's cash collateral needs, the Manager reserves the right to reduce or eliminate the Fund's derivative exposures. A reduction in those exposures may cause the performance of the 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.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.


24


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund uses derivatives as a substitute for direct investment in securities or other assets. In particular, the Fund may use swaps (including credit default swaps) or other derivatives on an index, a single security or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.


25


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


26


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options, rights and warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on futures
contracts* 		     2,128,581       —       —       —       —       2,128,581    
Unrealized appreciation on forward
currency contracts		     —       1,173,733       —       —       —       1,173,733    
Unrealized appreciation on swap
agreements		     —       —       1,109,783       —       —       1,109,783    
Total   $ 2,128,581     $ 1,173,733     $ 1,109,783     $ —     $ —     $ 4,412,097    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on futures
contracts* 		     (27,432 )     —       —       —       —       (27,432 )  
Unrealized depreciation on forward
currency contracts		     —       (403,171 )     —       —       —       (403,171 )  
Unrealized depreciation on swap
agreements		     —       —       (960,257 )     —       —       (960,257 )  
Total   $ (27,432 )   $ (403,171 )   $ (960,257 )   $ —     $ —     $ (1,390,860 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


27


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options,
rights and warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     (2,783,899 )     —       —       —       —       (2,783,899 )  
Swap contracts     —       —       (42,600 )     —       —       (42,600 )  
Written options     —       —       —       —       —       —    
Forward currency contracts     —       2,473,668       —       —       —       2,473,668    
Total   $ (2,783,899 )   $ 2,473,668     $ (42,600 )   $ —     $ —     $ (352,831 )  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options,
rights and warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     2,132,200       —       —       —       —       2,132,200    
Swap contracts     —       —       180,031       —       —       180,031    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       9,971,355       —       —       —       9,971,355    
Total   $ 2,132,200     $ 9,971,355     $ 180,031     $ —     $ —     $ 12,283,586    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Futures   Swaps  
Average notional amount outstanding   $ 143,163,065     $ 200,342,392     $ 36,000,000    
Highest notional amount outstanding     159,782,127       303,222,317       36,000,000    
Lowest notional amount outstanding     133,138,262       150,348,586       36,000,000    

 


28


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Other matters

SPHF, an investment of the Fund, has litigation pending against various entities related to the 2002 default of securities previously held by SPHF. The outcome of the lawsuits against the remaining defendants is not known and any potential recoveries are not reflected in the net asset value of SPHF. For the period ended August 31, 2009, the Fund received no distributions through SPHF in connection with settlement agreements related to that litigation.

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses); (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's Excluded Fund Fees and Expenses); and (c) the amount of fees and expenses incurred indirectly (through investment in other underlying funds) by the Fund through its (direct or indirect) investment in GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to such Fund equ al to 0.25% of the Fund's average daily net assets.


29


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2009, 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		  
  0.022 %     0.005 %     0.010 %     0.037 %  

 

        

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, 2009 was $2,247 and $1,288, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $23,275,252 and $12,300,000 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 69.24% 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.

As of August 31, 2009, 0.02% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 33.71% of the Fund's shares were held by accounts for which the Manager had investment discretion.


30


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     531     $ 3,411       1,411,603     $ 12,089,225    
Shares issued to shareholders
in reinvestment of distributions		     150,142       1,015,483       2,363,492       19,546,079    
Shares repurchased     (3,102,240 )     (21,077,854 )     (1,373,474 )     (11,349,226 )  
Redemption fees     —       421,557       —       13,923    
Net increase (decrease)     (2,951,567 )   $ (19,637,403 )     2,401,621     $ 20,300,001    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 7,736,793     $ 159,100     $ —     $ 159,100     $ —     $ 10,359,235    
GMO Short-Duration
Collateral Fund		     159,431,112       —       —       1,213,314       —       149,641,482    
GMO Special Purpose
Holding Fund		     33,462       —       —       —       —       28,878    
GMO U.S. Treasury Fund     —       23,116,151       12,300,000       16,151       —       10,817,950    
GMO World Opportunity
Overlay Fund		     46,286,913       —       —       —       —       48,834,585 o   
Totals   $ 213,488,280     $ 23,275,251     $ 12,300,000     $ 1,388,565     $ —     $ 219,682,130    

 

o  The Fund received return of capital distributions in the amount of $4,229,796.


31


GMO Global Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. On September 14, 2009, the Fund's redemption fee was eliminated.


32



GMO Global Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered information provided by the Manager addressing the Fund's performance, including a performance attribution analysis. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those p ersonnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.


33


GMO Global Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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 accoun t 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, including the effect of recent market events and changes in assets under management and revenues on such profits. 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 b y, for example, 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. The Trustees noted 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 of the underlying funds 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 u nder 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the systems in place to ensure compliance with the foregoing, and the record


34


GMO Global Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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. Finally, the Trustees also considered the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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 15, 2009, 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, 2009.


35


GMO Global Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including 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, 2009 through August 31, 2009.

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     0.42 %   $ 1,000.00     $ 1,196.20     $ 2.32    
2) Hypothetical     0.42 %   $ 1,000.00     $ 1,023.09     $ 2.14    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, 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 Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     92.5 %  
Short-Term Investments     8.9    
Futures     0.8    
Forward Currency Contracts     0.0    
Reverse Repurchase Agreements     (0.4 )  
Swaps     (0.6 )  
Other     (1.2 )  
      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, 2009 (Unaudited)

Par Value ($) /
Shares		   Description   Value ($)  
        DEBT OBLIGATIONS — 31.9%  
        U.S. Government — 31.9%  
    7,910,768     U.S. Treasury Inflation Indexed Bond, 0.88%, due 04/15/10 (a) (b) (c)      7,898,411    
    TOTAL DEBT OBLIGATIONS (COST $7,850,651)     7,898,411    
        MUTUAL FUNDS — 67.1%  
        Affiliated Issuers — 67.1%  
    936,264     GMO Short-Duration Collateral Fund     15,027,041    
    64,213     GMO U.S. Treasury Fund     1,605,970    
    TOTAL MUTUAL FUNDS (COST $19,781,833)     16,633,011    
      SHORT-TERM INVESTMENTS — 1.9%  
      Money Market Funds — 1.9%  
    408,165     SSgA USD Liquidity Fund-Class I Stable NAV Shares (a) (d)      408,165    
    71,797     State Street Institutional Treasury Plus Money Market Fund-
Institutional Class		     71,797    
    TOTAL SHORT-TERM INVESTMENTS (COST $479,962)     479,962    
            TOTAL INVESTMENTS — 100.9%
(Cost $28,112,446)		     25,011,384    
            Other Assets and Liabilities (net) — (0.9%)     (215,319 )  
    TOTAL NET ASSETS — 100.0%   $ 24,796,065    

 

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, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Futures Contracts (a)

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  12     Cocoa   December 2009   $ 335,280     $ 3,937    
  4     Copper   December 2009     282,650       (7,617 )  
  3     Gasoline RBOB   October 2009     228,048       (10,252 )  
  4     Gold 100 OZ   December 2009     381,400       (177 )  
  9     Lean Hogs   October 2009     173,340       8,279    
  4     Silver   December 2009     298,460       2,903    
  8     Soybean   November 2009     391,800       (17,192 )  
  13     Soybean Meal   December 2009     386,750       (16,407 )  
  3     Sugar 11   October 2009     81,950       22,274    
    $ 2,559,678     $ (14,252 )  
Sales      
  1     Coffee "C"   December 2009   $ 45,862     $ 3,914    
  27     Corn   December 2009     445,163       84,960    
  1     Heating Oil   October 2009     75,957       5,003    
  3     Light Sweet Crude Oil   October 2009     209,880       7,936    
  28     Live Cattle   October 2009     970,760       41,596    
  8     Natural Gas   October 2009     238,160       55,492    
  8     Soybean Oil   December 2009     170,880       (5,326 )  
  16     Wheat   December 2009     399,000       8,132    
    $ 2,555,662     $ 201,707    

 

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, 2009 (Unaudited)

Swap Agreements (a)

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Fund Pays   Fund Receives   Market
Value		  
  7,943,141     USD   10/14/2009   Barclays Capital   1 month   Return on DJ-AIG    
   
        T-Bill + 0.23%   Commodity    
   
            Total Return Index (b)    $ (112,090 )  
                        $ (112,090 )  
                    Premiums to (Pay) Receive   $ —    

 

As of August 31, 2009, 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:

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

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

(d)  Fund is domiciled in Ireland.

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, 2009 (Unaudited)

    GMO Alternative
Asset Opportunity
Fund		   GMO
Alternative Asset
SPC Ltd.		   Eliminations   Consolidated
Totals		  
Assets:  
Investments in unaffiliated issuers,
at value (consolidated
cost $8,330,613) (Note 2)		   $ 71,797     $ 8,306,576     $ —     $ 8,378,373    
Investments in affiliated issuers,
at value (consolidated
cost $19,781,833) (Note 2)		     24,804,226       —       (8,171,215 )     16,633,011    
Cash     —       45,771       —       45,771    
Dividends and interest receivable     3       27,853       —       27,856    
Receivable for expenses reimbursed
by Manager (Note 3)		     8,091       7,688       —       15,779    
Total assets     24,884,117       8,387,888       (8,171,215 )     25,100,790    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     9,410       —       —       9,410    
Shareholder service fee     3,137       —       —       3,137    
Trustees and Chief Compliance
Officer of GMO Trust fees		     94       —       —       94    
Payable for variation margin on
open futures contracts (Note 2)		     —       29,001       —       29,001    
Payable for open swap contracts (Note 2)     —       112,090       —       112,090    
Accrued expenses     75,411       75,582       —       150,993    
Total liabilities     88,052       216,673       —       304,725    
Net assets   $ 24,796,065     $ 8,171,215     $ (8,171,215 )   $ 24,796,065    
Shareholders' capital   $ 24,796,065                     $ 24,796,065    
Shares outstanding     966,124                       966,124    
Net asset value per share   $ 25.67                     $ 25.67    

 

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, 2009 (Unaudited)

    GMO Alternative
Asset Opportunity
Fund		   GMO
Alternative
Asset SPC Ltd.		   Eliminations   Consolidated
Totals		  
Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 122,721     $ —     $ —     $ 122,721    
Dividends     45       460       —       505    
Interest     32       237,274       —       237,306    
Total income (loss)     122,798       237,734       —       360,532    
Expenses:  
Management fee (Note 3)     52,984       —       —       52,984    
Shareholder service fee (Note 3)     17,661       —       —       17,661    
Audit and tax fees     46,368       —       —       46,368    
Custodian and transfer agent fees     1,564       39,560       —       41,124    
Legal fees     460       —       —       460    
Trustees fees and related expenses (Note 3)     226       4,232       —       4,458    
Miscellaneous     275       3,404       —       3,679    
Total expenses     119,538       47,196       —       166,734    
Fees and expenses reimbursed by
Manager (Note 3)		     (48,484 )     (47,196 )     —       (95,680 )  
Net expenses     71,054       —       —       71,054    
Net investment income (loss)     51,744       237,734       —       289,478    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     —       (14,101 )     —       (14,101 )  
Investments in affiliated issuers     (1,038,330 )     —       1,038,783       453    
Closed futures contracts     —       (354,416 )     —       (354,416 )  
Closed swap contracts     —       1,712,462       —       1,712,462    
Net realized gain (loss)     (1,038,330 )     1,343,945       1,038,783       1,344,398    
Change in net unrealized appreciation
(depreciation) on:		  
Investments in unaffiliated issuers     —       60,994       —       60,994    
Investments in affiliated issuers     4,638,181       —       (2,485,672 )     2,152,509    
Open futures contracts     —       117,059       —       117,059    
Open swap contracts     —       (312,843 )     —       (312,843 )  
Net unrealized gain (loss)     4,638,181       (134,790 )     (2,485,672 )     2,017,719    
Net realized and unrealized gain (loss)     3,599,851       1,209,155       (1,446,889 )     3,362,117    
Net increase (decrease) in net assets
resulting from operations		   $ 3,651,595     $ 1,446,889     $ (1,446,889 )   $ 3,651,595    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 289,478     $ 954,282    
Net realized gain (loss)     1,344,398       (6,532,494 )  
Change in net unrealized appreciation (depreciation)     2,017,719       (5,876,671 )  
Net increase (decrease) in net assets from operations     3,651,595       (11,454,883 )  
Fund share transactions: (Note 7)  
Proceeds from sale of shares     —       388    
Cost of shares repurchased     (1,269,793 )     (131,245 )  
Redemption fees     25,396       2,617    
Net increase (decrease) in Fund share transactions     (1,244,397 )     (128,240 )  
Total increase (decrease) in net assets     2,407,198       (11,583,123 )  
Net assets:  
Beginning of period     22,388,867       33,971,990    
End of period   $ 24,796,065     $ 22,388,867    

 

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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006(a)   
Net asset value, beginning of period   $ 21.94     $ 33.11     $ 28.54     $ 26.63     $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.29       0.93       0.69       1.28       0.73    
Net realized and unrealized gain (loss)     3.44       (12.10 )     3.88 (c)      0.63       0.90    
Total from investment operations     3.73       (11.17 )     4.57       1.91       1.63    
Net asset value, end of period   $ 25.67     $ 21.94     $ 33.11     $ 28.54     $ 26.63    
Total Return(d)      17.00 %**      (33.74 )%     16.01 %     7.17 %     6.52 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 24,796     $ 22,389     $ 33,972     $ 174,514     $ 181,947    
Net expenses to average daily
net assets(e) 		     0.60 %*      0.60 %(f)      0.60 %     0.60 %     0.61 %*   
Net investment income to average daily
net assets(b) 		     2.46 %*      3.24 %     2.41 %     4.60 %     3.12 %*   
Portfolio turnover rate     12 %**      89 %     24 %     12 %     13 %**   
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.81 %*      0.73 %     0.21 %     0.12 %     0.15 %*   
Redemption fees consisted of the
following per share amounts:† 		   $ 0.03     $ 0.00 (g)      —       —       —    

 

(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 and/or waived during the periods shown and assumes the effect of reinvested distributions. Calculation excludes 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)  The net expense ratio does not include the effect of expense reductions.

(g)  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 Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Alternative Asset Opportunity Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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-UBS Commodity Index, which is composed of futures contracts on nineteen physical commodities, and the J.P. Morgan U.S. 3 Month Cash Index, which measures the total return performance of three-month U.S. dollar Euro-deposits. The Dow Jones-UBS Commodity Index and J.P. Morgan U.S. 3 Month Cash Index each represent 50% of the composite benchmark. 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 (as discussed below), which, in turn, invests in various commodity-related derivatives. The Fund also may seek to add value by tak ing active positions in other exchange-traded and over-the-counter ("OTC") commodity-related derivatives, including options on commodity futures. The Fund also may use, directly or indirectly through its wholly owned subsidiary, a wide variety of other exchange-traded and OTC derivatives that are not linked to the value of a commodity or other commodity-related instrument (including financial futures, options, and swap contracts). The second component of the Fund's investment program consists of investments in U.S. and foreign fixed income securities, primarily asset-backed securities. The Fund has historically gained its investment exposure to fixed income securities through investment in GMO Short-Duration Collateral Fund ("SDCF"). A substantial portion of the Fund's investments (through SDCF) in fixed income securities may consist of asset-backed securities, including, but not limited to, securities backed by pools of residential and commercial mortgages, credit-card receivables, home equity loans, automo bile loans, educational loans, corporate and sovereign bonds, and bank loans made to corporations. In addition, the Fund may invest (including through SDCF) 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 may hold directly or indirectly (through SDCF) fixed income securities whose ratings, after the securities were acquired, were reduced below investment grade. In addition to its commodity-related investments, from time to time, the Fund may invest (through SDCF) a portion of its assets in a range of currency-related investments, including currency futures, forwards, and options. The Fund does not invest directly in commodities and commodity-related derivatives. Instead, to gain exposure to commodities and certain other assets, the Fund invests in a wholly owned subsidiary company, as noted above. GMO serves as the


9


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

investment manager to this company but does not receive any additional management or other fees for such services. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

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. Shares of SDCF are not publicly available for direct purchase.

As of August 31, 2009, shares of the Fund were not publicly offered and were principally available only to other series of the Trust and certain accredited investors.

The Fund currently limits subscriptions due to capacity considerations.

From prior to March 1, 2009 through July 12, 2009, the Fund had a policy to effect redemptions of its shares in-kind above de minimis levels. The Fund had established de minimis amounts below which redemptions would be honored for cash. Beginning July 13, 2009, the Fund expected to pay redemption requests with cash (less a redemption fee).

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.

As of August 31, 2009, a significant portion of the Fund's dividends received from other GMO funds is expected to be a return of capital for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" reported in the Statement of Operations has been reduced by the portion estimated to be a return of capital as of August 31, 2009. The estimated return of capital is $3,135,950. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the estimated return of capital. The dividends from affiliated issuers are subject to change and will not be finalized until February 28, 2010, the Fund's upcoming fiscal year-end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Basis of presentation and principles of consolidation

The accompanying consolidated financial statements include the accounts (and the related notes when appoproate) of the GMO Alternative Asset Opportunity Fund and its wholly owned investment in


10


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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.

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 11.86% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities


11


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

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

The following is a consolidated summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Debt Obligations  
U.S. Government   $ —     $ 7,898,411     $ —     $ 7,898,411    
TOTAL DEBT OBLIGATIONS     —       7,898,411       —       7,898,411    
Mutual Funds     1,605,970       15,027,041       —       16,633,011    
Short-Term Investments     —       479,962       —       479,962    
Total Investments     1,605,970       23,405,414       —       25,011,384    
Derivatives  
Futures Contracts     244,426       —       —       244,426    
Total   $ 1,850,396     $ 23,405,414     $ —     $ 25,255,810    

 


12


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical
Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Derivatives  
Futures Contracts   $ (56,971 )   $ —     $ —     $ (56,971 )  
Swap Agreements     —       (112,090 )     —       (112,090 )  
Total   $ (56,971 )   $ (112,090 )   $ —     $ (169,061 )  

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (direct and indirect) in securities and other financial instruments using Level 3 inputs were 49.29% and (0.15%) of total net assets, respectively.

The Fund held no investments or other financial instruments directly at either February 28, 2009 or August 31, 2009, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


13


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level


14


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to make a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. The Fund had no reverse repurchase agreements outstanding at the end of the period.


15


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants at the end of the period.

Taxes

The Fund has elected to be treated as a partnership for U.S. federal income tax purposes. As a partnership, the Fund is not itself subject to federal income tax. Instead, each shareholder is required to take into account in determining its tax liability its distributive share of items of Fund income, gain, loss, deduction, credit, and tax preference for each taxable year substantially as though such items have been realized directly by the shareholder and without regard to whether any distribution by the Fund has been or will be received. Accordingly, no provision (benefit) for federal and state income taxes is reflected in the accompanying financial statements.

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 32,698,604     $ 382,062     $ (8,069,282 )   $ (7,687,220 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

Distributions

Because the Fund has elected to be treated as a partnership for tax purposes, it is not required to make distributions to its shareholders. It is the policy of the Fund to declare and pay distributions as determined by the Trustees (or their delegates).


16


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the trade date in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through August 2, 2009, the fee on cash redemptions was 2.00% of the amount redeemed. From August 3, 2009 through August 31, 2009, the fee on cash redemptions was 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relat ing to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind


17


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Commodities Risk — 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.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security will be unable or unwilling to make timely principal, interest, or settlement payments or otherwise honor its obligations. Credit risk is particularly pronounced for below investment grade securities. Additionally, to the extent that the Fund uses OTC derivatives, including swap contracts with longer-term maturities, and/or has significant exposure to a single counterparty, this risk will be particularly pronounced for the Fund. This risk is particularly acute in environments in which financial services firms are ex posed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions.

• Leveraging Risk — The Fund's use of reverse repurchase agreements and other derivatives may cause its portfolio to be leveraged. The Fund is not limited in the extent to which it may use derivatives or in the absolute face value of its derivative positions, the Fund may be leveraged in relation to its assets. Leverage may increase the Fund's portfolio losses and reduce opportunities for gain when interest rates or currency rates are changing.

• Derivatives Risk — The use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may


18


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset. Derivatives risk is particularly pronounced for the Fund because a basic component of the Fund's principal investment strategies involves using derivatives, in particular commodity swap contracts, commodity futures, and other exchange-traded and OTC commodity-related derivatives, to gain indirect exposure to the investment returns of commodities that trade in the commodity markets.

• Management Risk — This is the risk that the Manager's strategies and techniques will fail to produce the desired results.

• Market Disruption and Geopolitical Risk — This is the risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

Other principal risks of an investment in the Fund include Focused Investment Risk (increased risk from the Fund's focus on investments in industries with high positive correlations to one another), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of u nderlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in


19


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underl ying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

The Fund uses its cash balance to meet its collateral obligations and for other purposes. There is no assurance that the Fund's cash balance will be sufficient to meet those obligations. If it is not, the Fund would be required to liquidate portfolio positions. To manage the Fund's cash collateral needs, the Manager reserves the right to reduce or eliminate the Fund's derivative exposures. A reduction in those exposures may cause the performance of the 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.


20


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund uses derivatives as a substitute for direct investment in securities or other assets. In particular, the Fund may use swaps (including credit default swaps) or other derivatives on an index, a single security or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms


21


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

(e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictability of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.


22


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a consolidated summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options, rights and warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on futures
contracts* 		     —       —       —       —       244,426       244,426    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ 244,426     $ 244,426    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on futures
contracts* 		     —       —       —       —       (56,971 )     (56,971 )  
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       (112,090 )     (112,090 )  
Total   $ —     $ —     $ —     $ —     $ (169,061 )   $ (169,061 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


23


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Net Realized Gain (Loss) on:  
Investments (purchased options,
rights and warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       —       (354,416 )     (354,416 )  
Swap contracts     —       —       —       —       1,712,462       1,712,462    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ 1,358,046     $ 1,358,046    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options,
rights and warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       —       117,059       117,059    
Swap contracts     —       —       —       —       (312,843 )     (312,843 )  
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ (195,784 )   $ (195,784 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures   Swaps  
Average notional amount outstanding   $ 5,147,263     $ 8,698,254    
Highest notional amount outstanding     5,411,607       10,009,814    
Lowest notional amount outstanding     4,652,597       7,200,000    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee is paid monthly at the annual rate of 0.45% of average daily net assets. The Fund has adopted a Shareholder Service Plan under


24


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.45% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 to the extent that the sum of (i) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses) and (ii) the amount of fees and expenses incurred indirectly by the Fund through its investment in GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.45% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.45% 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, 2009, 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		  
  0.004 %     0.000 %     0.002 %     0.006 %  

 

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, 2009 was $226 and $184, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.


25


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund's investments in commodity-related derivatives are generally made through GMO Alternative Asset 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, 2009, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ 3,028,710     $ 1,348,666    
Investments (non-U.S. Government securities)     3,125,880       1,520,000    

 

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 87.75% 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.

As of August 31, 2009, no shares of the Fund were held by senior management of the Manager and GMO Trust officers and 99.70% of the Fund's shares were held by accounts for which the Manager had investment discretion.


26


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Notes to Consolidated Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
    Shares   Amount   Shares   Amount  
Shares sold     —     $ —       15     $ 388    
Shares repurchased     (54,564 )     (1,269,793 )     (5,333 )     (131,245 )  
Redemption fees     —       25,396       —       2,617    
Net increase (decrease)     (54,564 )   $ (1,244,397 )     (5,318 )   $ (128,240 )  

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 16,010,119     $ —     $ —     $ 121,841     $ —     $ 15,027,041    
GMO U.S. Treasury Fund     —       3,125,880       1,520,000       880       —       1,605,970    
Totals   $ 16,010,119     $ 3,125,880     $ 1,520,000     $ 122,721     $ —     $ 16,633,011    

 

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. On September 14, 2009, the Fund's redemption fee was eliminated.


27



GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, the Trustees


28


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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, including the effect of recent market events and changes in assets under management and revenues on such profits. 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 u nder management by, for example, 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. The Trustees noted 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 of the underlying funds 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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,


29


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


30


GMO Alternative Asset Opportunity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including 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, 2009 through August 31, 2009.

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     0.61 %   $ 1,000.00     $ 1,170.00     $ 3.34    
2) Hypothetical     0.61 %   $ 1,000.00     $ 1,022.13     $ 3.11    

 

*  Expenses are calculated using the Fund's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, 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 Strategic Fixed Income Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     95.9 %  
Short-Term Investments     4.4    
Options Purchased     2.6    
Loan Participations     0.2    
Swaps     0.1    
Loan Assignments     0.0    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Forward Currency Contracts     0.0    
Written Options     (0.8 )  
Reverse Repurchase Agreements     (2.8 )  
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 Strategic Fixed Income Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($) /
Shares		   Description   Value ($)  
        DEBT OBLIGATIONS — 5.1%        
        United States — 5.1%        
        U.S. Government        
  81,099,600     U.S. Treasury Inflation Indexed Bond, 0.88% , due 04/15/10 (a)      80,972,923    
  33,000,000     U.S. Treasury Note, 1.13% , due 01/15/12     32,927,796    
    Total United States     113,900,719    
    TOTAL DEBT OBLIGATIONS (COST $116,238,382)     113,900,719    
        MUTUAL FUNDS — 92.1%        
        United States — 92.1%        
        Affiliated Issuers        
  7,397,456     GMO Emerging Country Debt Fund, Class IV     56,960,411    
  96,859,391     GMO Short-Duration Collateral Fund     1,554,593,219    
  41,284     GMO U.S. Treasury Fund     1,032,523    
  23,773,633     GMO World Opportunity Overlay Fund     460,257,541    
    Total United States     2,072,843,694    
    TOTAL MUTUAL FUNDS (COST $2,463,739,773)     2,072,843,694    
        SHORT-TERM INVESTMENTS — 2.0%        
        Money Market Funds — 2.0%        
  34,690,005     State Street Institutional Liquid Reserves Fund-Institutional Class     34,690,005    
  10,100,198     State Street Institutional Treasury Plus Money Market Fund-Institutional Class     10,100,198    
    TOTAL SHORT-TERM INVESTMENTS (COST $44,790,203)     44,790,203    
        TOTAL INVESTMENTS — 99.2%
(Cost $2,624,768,358)		     2,231,534,616    
        Other Assets and Liabilities (net) — 0.8%     17,930,241    
    TOTAL NET ASSETS — 100.0%   $ 2,249,464,857    

 

See accompanying notes to the financial statements.


2


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Swap Agreements

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Fund Pays   Fund Receives   Market
Value		  
  200,000,000     USD   10/14/2009   Barclays Bank Plc     0.50 %   Barclays U.S. TIPS  
 
                    10 Yr + Index Total  
 
                    Return (a)    $ 7,302,756    
  270,000,000     USD   10/15/2009   Barclays Bank Plc     0.50 %   Barclays U.S. TIPS
10 Yr + Index Total
Return (a) 		     10,839,602    
    $ 18,142,358    
    Premiums to (Pay) Receive   $ —    

 

As of August 31, 2009, for the swap contracts held, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.

Notes to Schedule of Investments:

TIPS - Treasury Inflation Protected Securities

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

Currency Abbreviations:

USD - United States Dollar

See accompanying notes to the financial statements.


3



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $161,028,585) (Note 2)   $ 158,690,922    
Investments in affiliated issuers, at value (cost $2,463,739,773) (Notes 2 and 8)     2,072,843,694    
Receivable for investments sold     21,187,758    
Dividends and interest receivable     319,615    
Receivable for open swap contracts (Note 2)     18,142,358    
Receivable for expenses reimbursed by Manager (Note 3)     53,825    
Total assets     2,271,238,172    
Liabilities:  
Payable for investments purchased     1,426    
Payable for Fund shares repurchased     20,923,688    
Payable to affiliate for (Note 3):  
Management fee     475,061    
Shareholder service fee     115,686    
Trustees and Chief Compliance Officer of GMO Trust fees     5,116    
Accrued expenses     252,338    
Total liabilities     21,773,315    
Net assets   $ 2,249,464,857    
Net assets consist of:  
Paid-in capital   $ 2,902,268,556    
Distributions in excess of net investment income     (65,424,699 )  
Accumulated net realized loss     (212,287,616 )  
Net unrealized depreciation     (375,091,384 )  
    $ 2,249,464,857    
Net assets attributable to:  
Class III shares   $ 103,285,492    
Class VI shares   $ 2,146,179,365    
Shares outstanding:  
Class III     6,420,586    
Class VI     133,548,933    
Net asset value per share:  
Class III   $ 16.09    
Class VI   $ 16.07    

 

See accompanying notes to the financial statements.


4


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 13,584,114    
Interest     2,590,171    
Dividends     253    
Total investment income     16,174,538    
Expenses:  
Management fee (Note 3)     2,870,067    
Shareholder service fee – Class III (Note 3)     149,022    
Shareholder service fee – Class VI (Note 3)     576,772    
Custodian, fund accounting agent and transfer agent fees     153,732    
Legal fees     69,552    
Audit and tax fees     34,776    
Trustees fees and related expenses (Note 3)     34,434    
Registration fees     1,012    
Miscellaneous     18,125    
Total expenses     3,907,492    
Fees and expenses reimbursed by Manager (Note 3)     (242,052 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (102,173 )  
Shareholder service fee waived (Note 3)     (25,142 )  
Net expenses     3,538,125    
Net investment income (loss)     12,636,413    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (5,423,686 )  
Investments in affiliated issuers     42,114    
Closed futures contracts     30,988    
Closed swap contracts     (80,457,812 )  
Written options     4,913,875    
Net realized gain (loss)     (80,894,521 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     3,598,352    
Investments in affiliated issuers     300,282,519    
Open futures contracts     (280,619 )  
Open swap contracts     135,530,070    
Written options     (2,056,500 )  
Net unrealized gain (loss)     437,073,822    
Net realized and unrealized gain (loss)     356,179,301    
Net increase (decrease) in net assets resulting from operations   $ 368,815,714    

 

See accompanying notes to the financial statements.


5


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 12,636,413     $ 125,135,018    
Net realized gain (loss)     (80,894,521 )     (297,988,395 )  
Change in net unrealized appreciation (depreciation)     437,073,822       (683,189,195 )  
Net increase (decrease) in net assets from operations     368,815,714       (856,042,572 )  
Distributions to shareholders from:  
Net investment income  
Class III     (878,008 )     (8,839,751 )  
Class VI     (8,715,034 )     (159,237,634 )  
Total distributions from net investment income     (9,593,042 )     (168,077,385 )  
Return of capital  
Class III     (49,671,519 )     —    
Class VI     (493,035,441 )     —    
Total distributions from return of capital     (542,706,960 )     —    
      (552,300,002 )     (168,077,385 )  
Net share transactions (Note 7):  
Class III     (104,973,375 )     (688,142 )  
Class VI     63,671,699       (1,905,410,410 )  
Increase (decrease) in net assets resulting from net share
transactions		     (41,301,676 )     (1,906,098,552 )  
Redemption fees (Notes 2 and 7):  
Class III     42,480       190,982    
Class VI     558,877       4,100,512    
Increase in net assets resulting from redemption fees     601,357       4,291,494    
Total increase (decrease) in net assets resulting from net share
transactions and redemption fees		     (40,700,319 )     (1,901,807,058 )  
Total increase (decrease) in net assets     (224,184,607 )     (2,925,927,015 )  
Net assets:  
Beginning of period     2,473,649,464       5,399,576,479    
End of period (including distributions in excess of net investment
income of $65,424,699 and $68,468,070, respectively)		   $ 2,249,464,857     $ 2,473,649,464    

 

See accompanying notes to the financial statements.


6



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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007(a)   
Net asset value, beginning of period   $ 17.37     $ 23.60     $ 25.22     $ 25.06    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.09       0.71       0.78       0.96    
Net realized and unrealized gain (loss)     2.51       (5.70 )     (1.37 )     0.34    
Total from investment operations     2.60       (4.99 )     (0.59 )     1.30    
Less distributions to shareholders:  
From net investment income     (0.07 )     (1.24 )     (0.97 )     (1.14 )  
From net realized gains     —       —       (0.06 )     —    
Return of capital     (3.81 )     —       —       —    
Total distributions     (3.88 )     (1.24 )     (1.03 )     (1.14 )  
Net asset value, end of period   $ 16.09     $ 17.37     $ 23.60     $ 25.22    
Total Return(c)      17.74 %**      (21.20 )%     (2.39 )%     5.23 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 103,285     $ 227,453     $ 277,879     $ 226,917    
Net expenses to average daily net assets(d)      0.39 %*      0.40 %(e)      0.38 %(e)      0.39 %*   
Net investment income to average daily net assets(b)      1.08 %*      3.32 %     3.12 %     5.96 %*   
Portfolio turnover rate     19 %**      70 %     67 %     7 %††**   
Fees and expenses reimbursed and/or waived by the
Manager to average daily net assets:		     0.03 %*      0.03 %     0.04 %     0.06 %*   
Redemption fees consisted of the following per share
amounts:† 		   $ 0.00 (f)    $ 0.02       —       —    

 

(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)  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 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)  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 period from May 31, 2006 through February 28, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


7


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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007(a)   
Net asset value, beginning of period   $ 17.35     $ 23.57     $ 25.22     $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.09       0.68       0.97       0.76    
Net realized and unrealized gain (loss)     2.51       (5.64 )     (1.55 )     0.61    
Total from investment operations     2.60       (4.96 )     (0.58 )     1.37    
Less distributions to shareholders:  
From net investment income     (0.07 )     (1.26 )     (1.01 )     (1.15 )  
From net realized gains     —       —       (0.06 )     —    
Return of capital     (3.81 )     —       —       —    
Total distributions     (3.88 )     (1.26 )     (1.07 )     (1.15 )  
Net asset value, end of period   $ 16.07     $ 17.35     $ 23.57     $ 25.22    
Total Return(c)      17.73 %**      (21.09 )%     (2.35 )%     5.52 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 2,146,179     $ 2,246,197     $ 5,121,698     $ 2,224,310    
Net expenses to average daily net assets(d)      0.30 %*      0.30 %(e)      0.29 %(e)      0.29 %*   
Net investment income to average daily net assets(b)      1.10 %*      3.14 %     3.87 %     4.01 %*   
Portfolio turnover rate     19 %**      70 %     67 %     7 %**   
Fees and expenses reimbursed and/or waived by the
Manager to average daily net assets:		     0.03 %*      0.03 %     0.04 %     0.06 %*   
Redemption fees consisted of the following per share
amounts:† 		   $ 0.00 (f)    $ 0.02       —       —    

 

(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. Calculation excludes 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)  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 Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Strategic Fixed Income Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 J.P. Morgan 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. The Fund seeks additional returns by seeking to exploit differences in global interest rates, sectors, and credit, currency, and emerging country debt markets. The Fund may implement its strategies: (i) synthetically by using exchange-traded and over-the-counter ("OTC") derivatives and investing in other series of the Trust and/or (ii) directly by purchasing bonds denominated in various currencies. The Fund has historically gained its investment exposure primarily through the use of derivatives and investments in other series of the Trust. As a result, the Fu nd has substantial holdings of GMO Short-Duration Collateral Fund ("SDCF") (a Fund that invests primarily in asset-backed securities) and GMO World Opportunity Overlay Fund ("Overlay Fund") (a Fund that invests in asset-backed securities and uses derivatives to attempt to exploit misvaluations in world interest rates, currencies and credit markets). Under normal circumstances, the Fund invests (directly or indirectly through investment in other series of the Trust) at least 80% of its assets in fixed income securities. For these purposes, "fixed income securities" includes (i) obligations of an issuer to make payments of principal and/or interest on future dates and (ii) synthetic debt instruments created by the Manager by using a futures contract, swap contract, currency forward or option. To implement its investment strategies, the Fund may invest in or hold: investment-grade bonds denominated in various currencies, including foreign and U.S. government securities and asset-backed securities issued by fore ign 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; derivatives, including without limitation, futures contracts, currency options, interest rate options, currency forwards, credit default swaps and other swap contracts; shares of SDCF (to gain exposure to asset-backed securities); shares of Overlay Fund (to attempt to exploit misvaluations in world interest rates, currencies, and credit markets); shares of GMO Emerging Country Debt Fund ("ECDF") (to gain exposure to sovereign debt of emerging countries); and shares of GMO U.S. Treasury Fund (for liquidity management purposes). Because of the deterioration in credit markets that became acute in 2008, the Fund through its investment in SDCF and Overlay Fund currently holds and may continue to hold


9


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

material positions of below investment grade securities. This is in addition to the Fund's emerging country debt investments. The Fund also invests in unaffiliated money market funds.

As of August 31, 2009, the Fund had two classes of shares outstanding: Class III and Class VI. Each class of shares bears a different shareholder service fee.

Since April 2009, the Fund has declared and paid dividends when it has acquired a meaningful cash position rather than reinvesting that cash in portfolio securities. The Fund intends to continue this practice for the time being.

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). As of August 31, 2009, shares of SDCF and Overlay Fund were not publicly available for direct purchase.

From prior to March 1, 2009 through July 12, 2009, the Fund had a policy to effect redemptions of its shares in-kind above de minimis levels. The Fund had established de minimis amounts below which redemptions would be honored for cash. Beginning July 13, 2009, the Fund had a policy to pay redemption requests with cash (less a redemption fee).

The Fund was not offering shares for purchase as of August 31, 2009.

On March 19, 2009, the Trustees approved GMO's plan to maximize the amount of cash distributed to shareholders that represents receipts on its portfolio holdings (including shares of the underlying funds) and from dispositions of those holdings. The plan was adopted in light of the requirements of Section 562 (b) of the Code and calls for the Fund to cease operations within 2 years. For purposes of meeting that timetable, the Fund may distribute securities (including shares of the underlying funds) in-kind (See Note 9 — Subsequent events).

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.

As of August 31, 2009, a significant portion of the Fund's dividends received from other GMO funds is expected to be a return of capital for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" reported in the Statement of Operations has been reduced by the portion estimated to be


10


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

a return of capital as of August 31, 2009. The estimated return of capital is $324,423,529. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the estimated return of capital. Furthermore, the "distributions to shareholders from return of capital" disclosed in the Statement of Changes in Net Assets and Financial Highlights are also estimates as of August 31, 2009. Both the dividends from affiliated issuers and distributions to shareholders from return of capital are subject to change and will not be finalized until February 28, 2010, the Fund's upcoming fiscal year-end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 18.34% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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


11


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

valuation of the Fund's investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Debt Obligations  
U.S. Government   $ 32,927,796     $ 80,972,923     $ —     $ 113,900,719    
TOTAL DEBT OBLIGATIONS     32,927,796       80,972,923       —       113,900,719    
Mutual Funds     57,992,934       2,014,850,760       —       2,072,843,694    
Short-Term Investments     —       44,790,203       —       44,790,203    
Total Investments     90,920,730       2,140,613,886       —       2,231,534,616    
Derivatives  
Swap Agreements     —       18,142,358       —       18,142,358    
Total   $ 90,920,730     $ 2,158,756,244     $ —     $ 2,249,676,974    

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's indirect investments in securities and other financial instruments using Level 3 inputs were 70.99% and (0.16)% of total net assets, respectively.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, whose fair value was determined using Level 3 inputs.


12


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some circumstances, futures exchanges may establish daily limits on the


13


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations.


14


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

For the period ended August 31, 2009, investment activity in written options contracts was as follows:

    Puts   Calls  
    Principal
Amount
of Contracts		   Number of
Contracts		   Premiums   Principal
Amount
of Contracts		   Number of
Contracts		   Premiums  
Outstanding,
beginning of period		   $ —       —     $ —     $ —       (3,000 )   $ (3,462,750 )  
Options written     —       —       —       —       (1,000 )     (1,451,125 )  
Options exercised     —       —       —       —       —       —    
Options expired     —       —       —       —       3,000       3,462,750    
Options sold     —       —       —       —       1,000       1,451,125    
Outstanding,
end of period		   $ —       —     $ —     $ —       —     $ —    

 

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

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. A loan is often administered by a bank or other financial institution 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 party from whom the Fund has purchased the participation and only upon receipt by that party of payments from the borrower and (ii) the Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement. As a result, the Fund may be subject to credit risk both of the party from whom it purchased the loan participation and the borrower. When the Fund purcha ses assignments of loans, it acquires direct rights against the borrower. The Fund had no loan agreements outstanding at the end of the period.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.


15


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.


16


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. The Fund had no reverse repurchase agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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


17


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 carryforwards 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. The Fund is permitted to, and will from time to time, declare and pay distributions from net investment income, if any, more frequently (e.g. monthly). As of August 31, 2009, all distributions have been paid in cash. 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $92,972,393 and post-October currency losses of $6,458,589.

As of February 28, 2009, 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:

2/28/2017   $ (137,475,668 )  
Total   $ (137,475,668 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:


Aggregate Cost		  
Gross Unrealized
Appreciation		  
Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 2,587,632,902     $ —     $ (356,098,286 )   $ (356,098,286 )  

 


18


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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 incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through August 2, 2009, the fee on cash redemptions was 2.00% of the amount redeemed. From August 3, 2009 through August 31, 2009, the fee on cash redemptions was 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or


19


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of e stimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value, and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security, will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise honor its obligations. This risk is particularly pronounced for the Fund because it typically uses OTC derivatives, including swap contracts with longer-term maturities, and may have significant exposure to a single counterparty. The risk of counterparty default is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Le hman Brothers and subsequent market disruptions.


20


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. The Fund may be required to sell certain less liquid securities at distressed prices or meet redemption requests in-kind. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular the asset-backed securities held by the Fund through SDCF and Overlay Fund.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in underlying funds, including the risk that the underlying funds in which it invests will not perform as expected.

Other principal risks of an investment in the Fund include Foreign Investment Risk (risk that the market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Leveraging Risk (increased risks from use of reverse repurchase agreeme nts and other derivatives and securities lending), Currency Risk (risk that fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies), Focused Investment Risk (increased risk from the Fund's focus on investments in countries, regions, or sectors with high positive correlations to one another), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified. Certain of the above-referenced risks will be more pronounced for the Fund as a result of its investment in ECDF. For more information about reverse repurchase agreements and other derivatives, please refer to the descriptions of financial instruments (e.g. reverse repurchase agreements, swaps, futures and other types of derivative contracts) in Note 2 above as well as the discussion of the Fund's use of derivatives below.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of u nderlying assets or other support available to produce the cash flows necessary to service


21


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underl ying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

The Fund uses its cash balance to meet its collateral obligations and for other purposes. There is no assurance that the Fund's cash balance will be sufficient to meet those obligations. If it is not, the Fund would be required to liquidate portfolio positions. To manage the Fund's cash collateral needs, the Manager reserves the right to reduce or eliminate the Fund's derivative exposures. A reduction in those exposures may cause the performance of the 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.

Among other trading agreements, the Fund is party to International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Agreements") with select counterparties that generally


22


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

govern over-the-counter derivative transactions entered into by the Fund. The ISDA Master Agreements typically include representations and warranties as well as contractual terms related to collateral, events of default, termination events, and other provisions. Termination events include the decline in the net assets of the Fund below a certain level over a specified period of time and entitle a counterparty to elect to terminate early with respect to some or all the transactions under the ISDA Agreement with that counterparty. Such an election by one or more of the counterparties could have a material adverse impact on the Fund's operations. Due to declines in the net assets of the Fund prior to August 31, 2009, one or more counterparties are entitled to terminate early but none has taken such action.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund uses derivatives as a substitute for direct investment in securities or other assets. In particular, the Fund may use swaps (including credit default swaps) or other derivatives on an index, a single security or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.


23


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.


24


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


25


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized appreciation on
forward currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on
swap agreements		     18,142,358       —       —       —       —       18,142,358    
Total   $ 18,142,358     $ —     $ —     $ —     $ —     $ 18,142,358    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on
forward currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on
swap agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


26


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     30,988       —       —       —       —       30,988    
Swap contracts     (80,457,812 )     —       —       —       —       (80,457,812 )  
Written options     4,913,875       —       —       —       —       4,913,875    
Forward currency contracts     —       —       —       —       —       —    
Total   $ (75,512,949 )   $ —     $ —     $ —     $ —     $ (75,512,949 )  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ 2,302,874     $ —     $ —     $ —     $ —     $ 2,302,874    
Futures contracts     (280,619 )     —       —       —       —       (280,619 )  
Swap contracts     135,530,070       —       —       —       —       135,530,070    
Written options     (2,056,500 )     —       —       —       —       (2,056,500 )  
Forward currency contracts     —       —       —       —       —       —    
Total   $ 135,495,825     $ —     $ —     $ —     $ —     $ 135,495,825    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures   Swaps   Options  
Average notional amount outstanding   $ 7,301,259     $ 2,647,805,523     $ 85,714,286    
Highest notional amount outstanding     51,108,813       15,643,319,332       600,000,000    
Lowest notional amount outstanding     —       470,000,000       —    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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


27


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

other support. Pursuant to the Shareholder Service Plan, the shareholder service fee is calculated based on average daily net assets at the annual rate of 0.15% for Class III shares and 0.055% for Class VI shares. The Manager will waive the Fund's shareholder service fee to the extent that the aggregate of any direct and indirect shareholder service fees borne by a class of shares of the Fund exceeds 0.15% for Class III shares and 0.055% for Class VI shares; provided, however, that the amount of this waiver will not exceed the respective Class's shareholder service fee.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses); (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's Excluded Fund Fees and Expenses); and (c) the amount of fees and expenses incurred indirectly (through investment in other underlying funds) by the Fund through its (direct or indirect) investment in GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to such Fund equ al 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, 2009, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net
Expenses
(excluding
shareholder service
fees and interest
expense)		   Indirect
Shareholder
Service Fees		   Indirect Interest
Expense		   Total Indirect
Expenses		  
  0.014 %     0.002 %     0.011 %     0.027 %  

 

        


28


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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, 2009 was $29,466 and $11,316, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.

4.  Purchases and sales of securities

For the period ended August 31, 2009, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ —     $ 16,962,813    
Investments (non-U.S. Government securities)     377,052,780       375,098,875    

 

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 74.32% 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.

As of August 31, 2009, no shares of the Fund were held by senior management of the Manager and GMO Trust officers and 99.79% of the Fund's shares were held by accounts for which the Manager had investment discretion.


29


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		  
Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     102,086     $ 1,774,254       6,706,775     $ 123,683,482    
Shares issued to shareholders
in reinvestment of distributions		     —       —       400,493       7,025,456    
Shares repurchased     (6,775,867 )     (106,747,629 )     (5,789,615 )     (131,397,080 )  
Redemption fees     —       42,480       —       190,982    
Net increase (decrease)     (6,673,781 )   $ (104,930,895 )     1,317,653     $ (497,160 )  
    Six Months Ended
August 31, 2009
(Unaudited)		  
Year Ended
February 28, 2009		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     5,504,041     $ 86,785,072       3,935,250     $ 89,019,736    
Shares issued to shareholders
in reinvestment of distributions		     —       —       9,080,584       159,234,461    
Shares repurchased     (1,429,232 )     (23,113,373 )     (100,806,037 )     (2,153,664,607 )  
Redemption fees     —       558,877       —       4,100,512    
Net increase (decrease)     4,074,809     $ 64,230,576       (87,790,203 )   $ (1,901,309,898 )  

 


30


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 43,275,117     $ —     $ —     $ 888,434     $ —     $ 56,960,411    
GMO Short-Duration
Collateral Fund		     1,656,295,579       —       —       12,604,862       —       1,554,593,219    
GMO U.S. Treasury
Fund		     —       375,690,818       374,700,000       90,818     $ —       1,032,523    
GMO World
Opportunity
Overlay Fund		     436,246,172       —       —       —       —       460,257,541 o   
Totals   $ 2,135,816,868     $ 375,690,818     $ 374,700,000     $ 13,584,114     $ —     $ 2,072,843,694    

 

o  The Fund received return of capital distributions in the amount of $39,865,097.

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. On September 14, 2009, the fund's redemption fee was eliminated.

On March 19, 2009, the Trustees of the Trust adopted a plan to cease the operations of the Fund within two years of that date. On October 19, 2009, the Trustees revoked that plan. "Distributions to shareholders", as disclosed in the Statement of Changes in Net Assets and the Financial Highlights for the period ended August 31, 2009 ("the statements"), have been adjusted to reclassify a portion of the distributions initially declared as a "return of capital" to "distributions from net investment income". The estimated sources of the distributions to shareholders as disclosed in the statements are subject to reclassification (depending on subsequent Fund operations) and will not be finalized until February 28, 2010, the Fund's fiscal year-end.

The Fund previously reported the estimated sources of "distributions from return of capital" paid on a per share basis. Pursuant to Rule 19a-1(e) of the Investment Company Act of 1940, the following serves as an update to the previously reported estimated sources of the distributions paid to shareholders. 1.74% of the distributions designated as "distributions from return of capital" in the 6 month period ended August 31, 2009 has been reclassified as distributions from "dividends" (income derived from dividends, interest and other income sources).


31



GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered information provided by the Manager addressing the Fund's performance, including a performance attribution analysis. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel receiv ed from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.


32


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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 accoun t 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, including the effect of recent market events and changes in assets under management and revenues on such profits. 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 b y, for example, 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. The Trustees noted 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 of the underlying funds 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 u nder 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the systems in place to ensure compliance with the foregoing, and the record


33


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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. Finally, the Trustees also considered the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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 15, 2009, 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, 2009.


34


GMO Strategic Fixed Income Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including 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, 2009 through August 31, 2009.

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     0.42 %   $ 1,000.00     $ 1,177.40     $ 2.31    
2) Hypothetical     0.42 %   $ 1,000.00     $ 1,023.09     $ 2.14    
Class VI  
1) Actual     0.33 %   $ 1,000.00     $ 1,177.30     $ 1.81    
2) Hypothetical     0.33 %   $ 1,000.00     $ 1,023.54     $ 1.68    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


35



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     74.1 %  
Short-Term Investments     26.3    
Forward Currency Contracts     0.0    
Swaps     (0.1 )  
Reverse Repurchase Agreements     (0.3 )  
Other     0.0    
      100.0 %  

 

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


1



GMO Short-Duration Investment Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($) /
Shares		   Description   Value ($)  
        DEBT OBLIGATIONS — 18.8%        
        U.S. Government Agency — 18.8%        
  81,667     Agency for International Development Floater (Support of Botswana),
6 mo. U.S. Treasury Bill + .40%, 0.66%, due 10/01/12 (a) 		     79,480    
  526,725     Agency for International Development Floater (Support of C.A.B.E.I),
6 mo. U.S. Treasury Bill + .40%, 0.66%, due 10/01/12 (a) 		     512,574    
  420,792     Agency for International Development Floater (Support of Honduras),
3 mo. U.S. Treasury Bill x 117%, 0.26%, due 10/01/11 (a) 		     410,716    
  29,952     Agency for International Development Floater (Support of Peru), Series B,
6 mo. U.S. Treasury Bill +.35%, 0.61%, due 05/01/14 (a) 		     28,704    
  231,581     Small Business Administration Pool #502320, Prime - 2.19%, 1.06%,
due 08/25/18		     230,086    
    Total U.S. Government Agency     1,261,560    
    TOTAL DEBT OBLIGATIONS (COST $1,290,473)     1,261,560    
        MUTUAL FUNDS — 80.5%        
        Affiliated Issuers — 80.5%        
  231,576     GMO Short-Duration Collateral Fund     3,716,797    
  9,192     GMO Special Purpose Holding Fund (b)      5,791    
  67,257     GMO U.S. Treasury Fund     1,682,108    
    TOTAL MUTUAL FUNDS (COST $6,337,256)     5,404,696    

 

See accompanying notes to the financial statements.


2


GMO Short-Duration Investment Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
    SHORT-TERM INVESTMENTS — 0.8%        
    Money Market Funds — 0.8%        
  55,165     State Street Institutional Treasury Plus Money Market
Fund-Institutional Class		     55,165    
    TOTAL SHORT-TERM INVESTMENTS (COST $55,165)     55,165    
    TOTAL INVESTMENTS — 100.1%
(Cost $7,682,894)		     6,721,421    
    Other Assets and Liabilities (net) — (0.1%)     (5,201 )  
    TOTAL NET ASSETS — 100.0%   $ 6,716,220    

 

Notes to Schedule of Investments:

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

The rates shown on variable rate notes are the current interest rates at August 31, 2009, 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, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $1,345,638) (Note 2)   $ 1,316,725    
Investments in affiliated issuers, at value (cost $6,337,256) (Notes 2 and 8)     5,404,696    
Receivable for investments sold     4,123    
Dividends and interest receivable     3,557    
Receivable for expenses reimbursed by Manager (Note 3)     3,751    
Total assets     6,732,852    
Liabilities:  
Payable for investments purchased     368    
Payable to affiliate for (Note 3):  
Management fee     283    
Shareholder service fee     850    
Accrued expenses     15,131    
Total liabilities     16,632    
Net assets   $ 6,716,220    
Net assets consist of:  
Paid-in capital   $ 10,381,184    
Distributions in excess of net investment income     (16,076 )  
Accumulated net realized loss     (2,687,415 )  
Net unrealized depreciation     (961,473 )  
    $ 6,716,220    
Net assets attributable to:  
Class III shares   $ 6,716,220    
Shares outstanding:  
Class III     864,687    
Net asset value per share:  
Class III   $ 7.77    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 32,064    
Interest     4,689    
Dividends     173    
Total investment income     36,926    
Expenses:  
Management fee (Note 3)     1,618    
Shareholder service fee – Class III (Note 3)     4,852    
Audit and tax fees     18,768    
Registration fees     2,117    
Custodian, fund accounting agent and transfer agent fees     1,012    
Legal fees     184    
Trustees fees and related expenses (Note 3)     50    
Total expenses     28,601    
Fees and expenses reimbursed by Manager (Note 3)     (22,080 )  
Net expenses     6,521    
Net investment income (loss)     30,405    
Realized and unrealized gain (loss):  
Investments in unaffiliated issuers     40    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     16,336    
Investments in affiliated issuers     531,755    
Net unrealized gain (loss)     548,091    
Net realized and unrealized gain (loss)     548,131    
Net increase (decrease) in net assets resulting from operations   $ 578,536    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 30,405     $ 264,898    
Net realized gain (loss)     40       20,786    
Change in net unrealized appreciation (depreciation)     548,091       (1,134,234 )  
Net increase (decrease) in net assets from operations     578,536       (848,550 )  
Distributions to shareholders from:  
Net investment income  
Class III     (47,230 )     (264,963 )  
Net share transactions (Note 7):  
Class III     (44,388 )     (34,132 )  
Redemption fees (Notes 2 and 7):  
Class III     1,201       352    
Total increase (decrease) in net assets resulting from net share
transactions and redemption fees		     (43,187 )     (33,780 )  
Total increase (decrease) in net assets     488,119       (1,147,293 )  
Net assets:  
Beginning of period     6,228,101       7,375,394    
End of period (including distributions in excess of net investment
income of $16,076 and accumulated undistributed net
investment income of $749, respectively)		   $ 6,716,220     $ 6,228,101    

 

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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of period   $ 7.15     $ 8.45     $ 8.93     $ 8.82     $ 8.77     $ 8.75    
Income (loss) from investment operations:  
Net investment income (loss)(a)†      0.04       0.30       0.32       0.47       0.27       0.23    
Net realized and unrealized gain (loss)     0.63       (1.29 )     (0.28 )     0.11       0.07       (0.01 )  
Total from investment operations     0.67       (0.99 )     0.04       0.58       0.34       0.22    
Less distributions to shareholders:  
From net investment income     (0.05 )     (0.31 )     (0.52 )     (0.47 )     (0.29 )     (0.20 )  
Total distributions     (0.05 )     (0.31 )     (0.52 )     (0.47 )     (0.29 )     (0.20 )  
Net asset value, end of period   $ 7.77     $ 7.15     $ 8.45     $ 8.93     $ 8.82     $ 8.77    
Total Return(b)      9.47 %**      (11.78 )%     0.40 %     6.62 %     3.83 %     2.49 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 6,716     $ 6,228     $ 7,375     $ 31,315     $ 29,454     $ 29,607    
Net expenses to average daily net assets(c)      0.20 %*      0.20 %     0.20 %     0.20 %     0.20 %     0.20 %  
Net investment income to average daily
net assets(a) 		     0.94 %*      3.81 %     3.59 %     5.21 %     3.01 %     2.57 %  
Portfolio turnover rate     3 %**      4 %     5 %     12 %     17 %     101 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.68 %*      0.79 %     0.60 %     0.14 %     0.13 %     0.10 %  
Redemption fees consisted of the
following per share amounts:† 		   $ 0.00 (d)    $ 0.00 (d)      —       —       —       —    

 

(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 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)  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 Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Short-Duration Investment Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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. To implement its investment strategies, the Fund may invest in asset-backed securities issued by private issuers, U.S. government and agency securities (including securities neither guaranteed nor insured by the U.S. government), corporate debt securities, money market instruments, prime commercial paper and master demand notes, and certificates of deposit, bankers' acceptances, and other bank obligations. The Fund has invested a substantial portion of its assets in GMO Short-Duration Collateral Fund ("SDCF") (which invests primarily in asset-backed securities). Because of the deterioration in credit markets that became acute in 2008, the Fund, in particular through its holdings of SDCF, currently holds and may continue to hold material positions of below investment grade securities. The Fund also invests in unaffili ated money market funds and in GMO U.S. Treasury Fund. The Fund is not a money market fund and is not subject to the duration, quality, diversification, and other requirements applicable to money market funds. The Fund's benchmark is the J.P. Morgan 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). As of August 31, 2009, shares of GMO Special Purpose Holding Fund ("SPHF") and SDCF were not publicly available for direct purchase.

From prior to March 1, 2009 through July 12, 2009, the Fund had a policy to effect redemptions of its shares in-kind above de minimis levels. The Fund had established de minimis amounts below which redemptions would be honored for cash. Begining July 13, 2009, the Fund had a policy to pay redemption requests with cash (less a redemption fee).

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


8


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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.

As of August 31, 2009, a significant portion of the Fund's dividends received from other GMO funds is expected to be a return of capital for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" reported in the Statement of Operations has been reduced by the portion estimated to be a return of capital as of August 31, 2009. The estimated return of capital is $775,648. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the estimated return of capital. The dividends from affiliated issuers are subject to change and will not be finalized until February 28, 2010, the Fund's upcoming fiscal year-end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale.

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 29.60% of the net assets of the Fund.


9


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund valued debt securities using a specified spread above the LIBOR Rate.

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Debt Obligations  
U.S. Government Agency   $ —     $ 230,086     $ 1,031,474     $ 1,261,560    
TOTAL DEBT OBLIGATIONS     —       230,086       1,031,474       1,261,560    
Mutual Funds     1,682,108       3,722,588       —       5,404,696    
Short-Term Investments     —       55,165       —       55,165    
Total Investments   $ 1,682,108     $ 4,007,839     $ 1,031,474     $ 6,721,421    

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (both direct and indirect) in securities and other financial instruments using Level 3 inputs were 60.36% and (0.13)% of total net assets, respectively.


10


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Debt Obligations
U.S. Government
Agency		   $ 1,195,846     $ (172,755 )   $ 30     $ 40     $ 14,104     $ (5,791 )   $ 1,031,474    
Total   $ 1,195,846     $ (172,755 )   $ 30     $ 40     $ 14,104     $ (5,791 )   $ 1,031,474    

 

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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


11


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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.

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

As of February 28, 2009, 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   $ (470,429 )  
2/28/2013     (708 )  
2/28/2014     (1,377,141 )  
2/29/2016     (226,383 )  
Total   $ (2,074,661 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 8,299,462     $ 53,593     $ (1,631,634 )   $ (1,578,041 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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


12


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

for inflation and any increase or decrease is recorded as interest income or investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through August 2, 2009, the fee on cash redemptions was 2.00% of the amount redeemed. From August 3, 2009 through August 31, 2009, the fee on cash redemptions was 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relat ing to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.


13


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008. This summary is not intended to include every potential risk of investing in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. The Fund may be required to sell certain less liquid securities at distressed prices or to meet redemption requests in-kind. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular the asset-backed securities held by the Fund through SDCF. The Fund invests in fixed income securities, in particular asset-backed securities, that may be less liquid than the securities in its benchmark. As a result, the Fund's investments may not be as liquid as those of other short-duration fixed income funds.

• Focused Investment Risk — Focusing investments in countries, regions, or sectors with high positive correlations to one another creates additional risk. This risk may be particularly pronounced for the Fund because of its exposure to asset-backed securities secured by different types of consumer debt (e.g., credit-card receivables, automobile loans, and home equity loans).

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in underlying funds, including the risk that the underlying funds in which it invests will not perform as expected.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund or SDCF involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund or SDCF), Credit and Counterparty Risk (risk of default of an issuer of a portfolio security or a derivatives counterparty of an underlying fund or borrower of an underlying fund's securities), Management Risk (risk that th e Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or


14


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

redeeming Fund shares in large amounts and/or on a frequent basis). The Fund and SDCF are non-diversified investment companies under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund or SDCF may affect the Fund's performance more than if the Fund or SDCF were diversified. For more information about reverse repurchase agreements and other derivatives, please refer to the descriptions of financial instruments (e.g. reverse repurchase agreements, swaps, futures and other types of derivative contracts) in Note 2 above as well as the discussion of the Fund's use of derivatives below.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of u nderlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underl ying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some


15


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.

Other Matters

SPHF, an investment of the Fund, has litigation pending against various entities related to the 2002 default of securities previously held by SPHF. The outcome of the lawsuits against the remaining defendants is not known and any potential recoveries are not reflected in the net asset value of SPHF. For the period ended August 31, 2009, the Fund received no distributions through SPHF in connection with settlement agreements related to that litigation.

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.05% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) 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


16


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.05% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.05% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2009, 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		  
  0.037 %     0.000 %     0.002 %     0.039 %  

 

        

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO the period ended August 31, 2009 was $50 and $0, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $1,681,928 and $185,103, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


17


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 55.73% 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.

As of August 31, 2009, 13.89% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 77.90% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     —     $ —       4     $ 32    
Shares issued to shareholders
in reinvestment of distributions		     3,480       25,773       23,717       175,909    
Shares repurchased     (9,601 )     (70,161 )     (25,867 )     (210,073 )  
Redemption fees     —       1,201       —       352    
Net increase (decrease)     (6,121 )   $ (43,187 )     (2,146 )   $ (33,780 )  

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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   $ 3,959,951     $ —     $ —     $ 30,136     $ —     $ 3,716,797    
GMO Special Purpose Holding Fund     6,710       —       —       —       —       5,791    
GMO U.S. Treasury Fund     —       1,681,928       —       1,928       —       1,682,108    
Totals   $ 3,966,661     $ 1,681,928     $ —     $ 32,064     $ —     $ 5,404,696    

 


18


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. On September 14, 2009, the Fund's redemption fee was eliminated


19



GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered information provided by the Manager addressing the Fund's performance, including a performance attribution analysis. 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. The


20


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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. The Trustees noted 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 of the underlying funds 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


21


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


22


GMO Short-Duration Investment Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including 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, 2009 through August 31, 2009.

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     0.24 %   $ 1,000.00     $ 1,094.70     $ 1.27    
2) Hypothetical     0.24 %   $ 1,000.00     $ 1,024.00     $ 1.22    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, 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 International Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     88.6 %  
Short-Term Investments     12.1    
Options Purchased     2.0    
Futures     0.9    
Forward Currency Contracts     0.4    
Loan Participations     0.2    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Swaps     (0.5 )  
Written Options     (0.6 )  
Reverse Repurchase Agreements     (2.3 )  
Other     (0.9 )  
      100.0 %  
Country Summary**   % of Investments  
Euro Region***     52.8 %  
Japan     26.2    
United Kingdom     14.1    
Emerging****     4.5    
Canada     4.1    
Australia     2.4    
Sweden     0.4    
United States     (4.5 )  
      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 table is based on duration adjusted exposures, taking into account the market value of securities and the notional amounts of swaps and other derivative contracts. Duration is based on the Manager's models. The greater the duration of a bond, the greater its contribution to the concentration percentage. Credit default swap exposures (both positive and negative) are factored into the duration-adjusted exposure using the reference security and applying the same methodology to that security.

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

****  The "Emerging" exposure is associated with investments in the GMO Emerging Country Debt Fund, which is exposed to emerging countries primarily comprised of Russia, Argentina, Brazil, Philippines, Mexico, Venezuela, Colombia, Uruguay, Turkey, and Indonesia. Additional information about the fund's emerging country exposure is available in the financial statements of the GMO Emerging Country Debt Fund.


1



GMO International Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value   Description   Value ($)  
        DEBT OBLIGATIONS — 22.2%  
        Canada — 1.1%  
        Foreign Government Obligations  
CAD     1,760,000     Government of Canada, 8.00%, due 06/01/23     2,318,634    
        France — 2.9%  
        Foreign Government Obligations  
EUR     4,500,000     Government of France, 4.00%, due 10/25/38     6,335,075    
        Germany — 3.3%  
        Foreign Government Obligations  
EUR     4,500,000     Republic of Deutschland, 4.75%, due 07/04/34 (a)      7,116,960    
        Japan — 7.4%  
        Foreign Government Obligations  
JPY     1,438,400,000     Japan Government Twenty Year Bond, 2.20%, due 06/20/26     16,028,305    
        United Kingdom — 3.6%  
        Foreign Government Obligations  
GBP     4,500,000     U.K. Treasury Gilt, 4.25%, due 12/07/27     7,661,302    
        United States — 3.9%  
        U.S. Government  
USD     8,411,594     U.S. Treasury Inflation Indexed Bond, 0.88%, due 04/15/10 (a) (b)      8,398,455    
    TOTAL DEBT OBLIGATIONS (COST $47,087,642)     47,858,731    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 74.5%  
        United States — 74.5%  
        Affiliated Issuers  
    1,026,942     GMO Emerging Country Debt Fund, Class III     7,907,457    
    6,390,009     GMO Short-Duration Collateral Fund     102,559,652    
    37,466     GMO Special Purpose Holding Fund (c)      23,604    
    613,955     GMO U.S. Treasury Fund     15,355,011    
    1,778,001     GMO World Opportunity Overlay Fund     34,422,091    
    Total United States     160,267,815    
    TOTAL MUTUAL FUNDS (COST $185,774,272)     160,267,815    
        SHORT-TERM INVESTMENTS — 3.0%  
        Money Market Funds — 3.0%  
    6,473,900     State Street Institutional Treasury Plus Money Market Fund-Institutional Class     6,473,900    
    TOTAL SHORT-TERM INVESTMENTS (COST $6,473,900)     6,473,900    
          TOTAL INVESTMENTS — 99.7%
(Cost $239,335,814)		     214,600,446    
          Other Assets and Liabilities (net) — 0.3%     549,959    
    TOTAL NET ASSETS — 100.0%   $ 215,150,405    

 

See accompanying notes to the financial statements.


3


GMO International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys †  
10/20/09   AUD     900,000     $ 757,805     $ 9,905    
9/01/09   AUD     900,000       760,680       58,680    
9/08/09   CAD     2,600,000       2,375,017       49,436    
10/06/09   EUR     52,700,000       75,553,112       (310,646 )  
9/15/09   GBP     4,300,000       6,999,967       (92,883 )  
10/13/09   JPY     5,590,000,000       60,092,174       1,049,323    
    $ 146,538,755     $ 763,815    
Sales #  
9/01/09   AUD     900,000     $ 760,680     $ (9,990 )  

 

†  Fund buys foreign currency; sells USD.

#  Fund sells foreign currency; buys USD.

Forward Cross Currency Contracts

Settlement
Date		   Deliver/Units of Currency   Receive/In Exchange For   Net Unrealized
Appreciation
(Depreciation)		  
  9/22/09     EUR 1,300,000     SEK 13,585,000     $ 44,841    

 

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  17     Australian Government Bond 10 Yr.   September 2009   $ 1,503,915     $ 7,980    
  29     Australian Government Bond 3 Yr.   September 2009     2,516,526       (25,664 )  
  33     Canadian Government Bond 10 Yr.   December 2009     3,632,336       14,010    
  215     Euro Bund   September 2009     37,797,490       1,199,187    
  169     Euro BOBL   September 2009     28,174,541       449,499    
  400     Federal Funds 30 day   September 2009     166,388,310       (9,206 )  

 

See accompanying notes to the financial statements.


4


GMO International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Futures Contracts — continued

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  12     Japanese Government Bond 10 Yr. (TSE)   September 2009   $ 17,942,612     $ 398,193    
  3     U.S. Treasury Note 5 Yr. (CBT)   December 2009     345,750       1,494    
  63     UK Gilt Long Bond   December 2009     12,151,419       34,605    
                $ 270,452,899     $ 2,070,098    
Sales      
  2     U.S. Treasury Bond (CBT)   December 2009   $ 239,500     $ (1,311 )  
  14     U.S. Treasuy Note 2 Yr. (CBT)   December 2009     3,028,813       (6,962 )  
  52     U.S. Treasury Note 10 Yr. (CBT)   December 2009     6,095,375       (35,093 )  
                $ 9,363,688     $ (43,366 )  

 

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  21,000,000     USD   3/20/2014   Deutsche   (Pay)     1.70 %     0.71 %   Republic of   NA     $ (960,257 )  
            Bank AG               Italy              
  15,000,000     USD   3/20/2019   Deutsche   Receive     1.66 %     0.77 %   Republic of   15,000,000   USD       1,109,783    
            Bank AG               Italy              
    $ 149,526    
    Premiums to (Pay) Receive   $ —    

 

^  Receive - Fund receives premium and sells credit protection. (Pay) - Fund pays premium and buys credit protection.

(1)  Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on the reference security, as of August 31, 2009, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider (i.e. higher) credit spreads represent a deterioration of the referenced entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(2)  The maximum potential amount the Fund could be required to make as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

See accompanying notes to the financial statements.


5


GMO International Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, 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:

BOBL - Bundesobligationen

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

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

(c)  Underlying investment represents interests in defaulted securities.

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

EUR - Euro

GBP - British Pound

JPY - Japanese Yen

SEK - Swedish Krona

USD - United States Dollar

See accompanying notes to the financial statements.


6



GMO International Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $53,561,542) (Note 2)   $ 54,332,631    
Investments in affiliated issuers, at value (cost $185,774,272) (Notes 2 and 8)     160,267,815    
Dividends and interest receivable     473,745    
Unrealized appreciation on open forward currency contracts (Note 2)     1,212,185    
Receivable for variation margin on open futures contracts (Note 2)     2,422,420    
Receivable for open swap contracts (Note 2)     1,109,783    
Receivable for expenses reimbursed by Manager (Note 3)     12,911    
Other expense reimbursement from Manager (Note 2)     830,768    
Total assets     220,662,258    
Liabilities:  
Foreign currency due to custodian     942,655    
Payable for investments purchased     752,799    
Payable to affiliate for (Note 3):  
Management fee     44,675    
Shareholder service fee     26,805    
Trustees and Chief Compliance Officer of GMO Trust fees     482    
Payable to broker for closed futures contracts     1,478,383    
Unrealized depreciation on open forward currency contracts (Note 2)     413,519    
Payable for open swap contracts (Note 2)     960,257    
Accrued expenses     892,278    
Total liabilities     5,511,853    
Net assets   $ 215,150,405    
Net assets consist of:  
Paid-in capital   $ 280,701,480    
Accumulated undistributed net investment income     25,485,719    
Accumulated net realized loss     (69,251,207 )  
Net unrealized depreciation     (21,785,587 )  
    $ 215,150,405    
Net assets attributable to:  
Class III shares   $ 215,150,405    
Shares outstanding:  
Class III     30,503,197    
Net asset value per share:  
Class III   $ 7.05    

 

See accompanying notes to the financial statements.


7


GMO International Bond Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 1,000,208    
Interest     780,514    
Dividends     2,285    
Total investment income     1,783,007    
Expenses:  
Management fee (Note 3)     260,346    
Shareholder service fee – Class III (Note 3)     156,208    
Custodian, fund accounting agent and transfer agent fees     48,024    
Audit and tax fees     33,396    
Legal fees     6,808    
Trustees fees and related expenses (Note 3)     2,224    
Registration fees     2,116    
Miscellaneous     2,116    
Total expenses     511,238    
Fees and expenses reimbursed by Manager (Note 3)     (88,688 )  
Expense reductions (Note 2)     (2 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (14,340 )  
Shareholder service fee waived (Note 3)     (5,289 )  
Net expenses     402,919    
Net investment income (loss)     1,380,088    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (249,873 )  
Investments in affiliated issuers     (6,211,252 )  
Closed futures contracts     (2,582,734 )  
Closed swap contracts     (42,600 )  
Foreign currency, forward contracts and foreign currency related transactions     1,934,391    
Net realized gain (loss)     (7,152,068 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     4,259,526    
Investments in affiliated issuers     27,722,675    
Open futures contracts     1,666,148    
Open swap contracts     180,031    
Foreign currency, forward contracts and foreign currency related transactions     11,516,002    
Net unrealized gain (loss)     45,344,382    
Net realized and unrealized gain (loss)     38,192,314    
Net increase (decrease) in net assets resulting from operations   $ 39,572,402    

 

See accompanying notes to the financial statements.


8


GMO International Bond Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,380,088     $ 8,570,499    
Net realized gain (loss)     (7,152,068 )     (27,717,738 )  
Change in net unrealized appreciation (depreciation)     45,344,382       (74,511,421 )  
Net increase (decrease) in net assets from operations     39,572,402       (93,658,660 )  
Distributions to shareholders from:  
Net investment income  
Class III     (12,100,001 )     (53,793,041 )  
Net share transactions (Note 7):  
Class III     (24,169,663 )     (155,905,746 )  
Redemption fees (Notes 2 and 7):  
Class III     83,993       550,622    
Total increase (decrease) in net assets resulting from net share
transactions and redemption fees		     (24,085,670 )     (155,355,124 )  
Total increase (decrease) in net assets     3,386,731       (302,806,825 )  
Net assets:  
Beginning of period     211,763,674       514,570,499    
End of period (including accumulated undistributed net investment
income of $25,485,719 and $36,205,632, respectively)		   $ 215,150,405     $ 211,763,674    

 

See accompanying notes to the financial statements.


9



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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 6.17     $ 9.51     $ 9.73     $ 9.57     $ 10.61     $ 10.38    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.04       0.19       0.41       0.41       0.21       0.17    
Net realized and unrealized
gain (loss)		     1.23       (2.32 )     0.31       0.38       (0.93 )     1.02    
Total from investment
operations		     1.27       (2.13 )     0.72       0.79       (0.72 )     1.19    
Less distributions to shareholders:  
From net investment income     (0.39 )     (1.21 )     (0.94 )     (0.54 )     (0.31 )     (0.91 )  
From net realized gains     —       —       —       (0.09 )     (0.01 )     (0.05 )  
Total distributions     (0.39 )     (1.21 )     (0.94 )     (0.63 )     (0.32 )     (0.96 )  
Net asset value, end of period   $ 7.05     $ 6.17     $ 9.51     $ 9.73     $ 9.57     $ 10.61    
Total Return(b)      21.19 %**      (24.52 )%     8.09 %     8.32 %     (6.83 )%     11.81 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 215,150     $ 211,764     $ 514,570     $ 449,478     $ 422,528     $ 438,365    
Net expenses to average daily
net assets(c) 		     0.39 %(d)*      0.39 %     0.38 %(d)      0.39 %     0.39 %     0.39 %  
Net investment income to
average daily net assets(a) 		     1.33 %*      2.20 %     4.26 %     4.17 %     2.13 %     1.65 %  
Portfolio turnover rate     6 %**      47 %     51 %     32 %     36 %     51 %  
Fees and expenses reimbursed
and/or waived by the Manager
to average daily net assets:		     0.10 %*      0.09 %     0.07 %     0.26 %(e)      0.08 %     0.09 %  
Redemption fees consisted of the
following per share amounts:† 		   $ 0.00 (f)    $ 0.01       —       —       —       —    

 

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

(b)  The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown and assumes the effect of reinvested distributions. Calculation excludes 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)  Includes 0.19% non-recurring Internal Revenue Code Section 860 expense reimbursed by the Manager (Note 2).

(f)  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.


10



GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO International Bond Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 J.P. Morgan Non-U.S. Government Bond Index. The Fund typically invests in bonds included in the Fund's benchmark and in securities and instruments with similar characteristics. The Fund seeks additional returns by seeking to exploit differences in global interest rates, sectors, and credit, currency, and emerging country debt markets. The Fund may implement its strategies: (i) synthetically by using exchange-traded and over-the-counter ("OTC") derivatives and investing in other series of the Trust and/or (ii) directly by purchasing bonds denominated in various currencies. The Fund has historically gained its investment exposure primarily through the use of derivatives and investments in other series of the Trust. As a result, the Fund has substantial holdings of GMO Short-Duration Collateral Fund ("SDCF") (a Fund that invests primarily in asset-backed securities ) and GMO World Opportunity Overlay Fund ("Overlay Fund") (a Fund that invests in asset-backed securities and uses derivatives to attempt to exploit misvaluations in world interest rates, currencies and credit markets). Under normal circumstances, the Fund invests (directly and indirectly through other series of the Trust) at least 80% of its assets in bonds. For these purposes, the term "bonds" includes (i) obligations of an issuer to make payments of principal and/or interest on future dates and (ii) synthetic debt instruments created by the Manager by using a futures contract, swap contract, currency forward or option. To implement its investment strategies, the Fund may invest in or hold: 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 as set-backed securities issued by private issuers; derivatives, including without limitation, futures contracts, currency options, currency forwards, credit default swaps and other swap contracts (to gain exposure to the global interest rate, credit, and currency markets); shares of SDCF (to gain exposure to asset-backed securities); shares of Overlay Fund (to attempt to exploit misvaluations in world interest rates, currencies, and credit markets); shares of GMO Emerging Country Debt Fund ("ECDF") (to gain exposure to sovereign debt of emerging countries); and shares of GMO U.S. Treasury Fund (for liquidity management purposes). Because of the deterioration in credit markets that became acute in 2008, the Fund through its investment in SDCF and Overlay Fund currently holds and may continue to hold material positions of below investment grade securities. This is in addition to the Fund's emerging country debt investments. The Fund also may invest in unaffiliated money market funds.


11


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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). As of August 31, 2009, shares of the GMO Short-Duration Collateral Fund, the GMO World Opportunity Overlay Fund and the GMO Special Purpose Holding Fund were not publicly available for direct purchase.

From prior to March 1, 2009 through July 12, 2009, the Fund had a policy to effect redemptions of its shares in-kind above de minimis levels. The Fund had established de minimis amounts below which redemptions would be honored for cash. Beginning July 13, 2009, the Fund had a policy to pay redemption requests with cash (less a redemption fee).

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.

As of August 31, 2009, a significant portion of the Fund's dividends received from other GMO funds is expected to be a return of capital for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" reported in the Statement of Operations has been reduced by the portion estimated to be a return of capital as of August 31, 2009. The estimated return of capital is $22,112,994. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the estimated return of capital. The dividends from affiliated issuers are subject to change and will not be finalized until February 28, 2010, the Fund's upcoming fiscal year-end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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.


12


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 20.27% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund utilizes third party valuation services (which use industry standard models and inputs from pricing vendors) to value credit default swaps.


13


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Debt Obligations  
Foreign Government Obligations   $ —     $ 39,460,276     $ —     $ 39,460,276    
U.S. Government     —       8,398,455       —       8,398,455    
TOTAL DEBT OBLIGATIONS     —       47,858,731       —       47,858,731    
Mutual Funds     23,262,468       137,005,347       —       160,267,815    
Short-Term Investments     —       6,473,900       —       6,473,900    
Total Investments     23,262,468       191,337,978       —       214,600,446    
Derivatives  
Forward Currency Contracts     —       1,212,185       —       1,212,185    
Futures Contracts     2,104,968       —       —       2,104,968    
Swap Agreements     —       —       1,109,783       1,109,783    
Total   $ 25,367,436     $ 192,550,163     $ 1,109,783     $ 219,027,382    

 

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical
Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Forward Currency Contracts   $ —     $ (413,519 )   $ —     $ (413,519 )  
Futures Contracts     (78,236 )     —       —       (78,236 )  
Swap Agreements     —       —       (960,257 )     (960,257 )  
Total   $ (78,236 )   $ (413,519 )   $ (960,257 )   $ (1,452,012 )  

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their


14


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

financial statements. The aggregate net value of the Fund's investments (both direct and indirect ) in securities and other financial instruments using Level 3 inputs were 51.96% and (0.07%) of total net assets, respectively.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Mutual Fund   $ 27,350     $ —     $ —     $ —     $ (3,746 )   $ (23,604 )   $ —    
Swaps     (30,505 )     (42,600 )     —       42,600       180,031       —       149,526    
Total   $ (3,155 )   $ (42,600 )   $ —     $ 42,600     $ 176,285     $ (23,604 )   $ 149,526    

 

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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


15


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.


16


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written 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 options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.


17


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not received timely by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to


18


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. The Fund had no reverse repurchase agreements outstanding at the end of the perio d.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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. The Fund is permitted to, and will from time to time, declare and pay distributions from net investment income, if any, more frequently (e.g., monthly). 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.


19


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $8,848,476.

As of February 28, 2009, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Such losses expire as follows:

2/28/2015   $ (23,687,952 )  
2/29/2016     (507,910 )  
2/28/2017     (14,485,912 )  
Total   $ (38,681,774 )  

 

Utilization of the capital loss carryforwards, post-October capital losses and future losses, if any, realized subsequent to February 28, 2009, could be subject to limitations imposed by the Code related to share ownership activity.

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 248,447,778     $ 1,137,638     $ (34,984,970 )   $ (33,847,332 )  

 

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 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.

For the period ended August 31, 2009, the Fund had net realized losses attributed to redemption in-kind transactions of $6,390,613.

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to


20


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through August 2, 2009, the fee on cash redemptions was 2.00% of the amount redeemed. From August 3, 2009 through August 31, 2009, the fee on cash redemptions was 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relat ing to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the


21


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value, and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008.This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. The Fund may be required to sell certain less liquid securities at distressed prices or meet redemption requests in-kind. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular the asset-backed securities held by the Fund through SDCF and Overlay Fund.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security, will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise honor its obligations. This risk is particularly pronounced for the Fund because it typically uses OTC derivatives, including swap contracts with longer-term maturities, and may have significant exposure to a single counterparty. The risk of counterparty default is particularly acute in economic environments where financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehma n Brothers and subsequent market disruptions.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in underlying funds, including the risk that the underlying funds in which it invests will not perform as expected.


22


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Other principal risks of an investment in the Fund include Foreign Investment Risk (risk that the market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Leveraging Risk (increased risks from use of reverse repurchase agreeme nts and other derivatives and securities lending), Focused Investment Risk (increased risk from the Fund's focus on investments in countries, regions, or sectors with high positive correlations to one another), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified. For more information about reverse repurchase agreement and other derivatives, please refer to the descriptions of financial instruments (e.g. reverse repurchase agreements, swaps, futures, and other types of derivative contracts) in Note 2 above as well as the discussion of the Fund's use of derivatives below. Certain of the above-referenced risks will be more pronounced for the Fund as a result of its investment in ECDF.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of u nderlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type


23


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underlying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

The Fund uses its cash balance to meet its collateral obligations and for other purposes. There is no assurance that the Fund's cash balance will be sufficient to meet those obligations. If it is not, the Fund would be required to liquidate portfolio positions. To manage the Fund's cash collateral needs, the Manager reserves the right to reduce or eliminate the Fund's derivative exposures. A reduction in those exposures may cause the performance of the 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.

Among other trading agreements, the Fund is party to International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Agreements") with select counterparties that generally govern over-the-counter derivative transactions entered into by the Fund. The ISDA Master Agreements typically include representations and warranties as well as contractual terms related to collateral, events of default, termination events, and other provisions. Termination events include the decline in the net assets of the Fund below a certain level over a specified period of time and entitle a counterparty to elect to terminate early with respect to some or all the transactions under the ISDA Agreement with that counterparty. Such an election by one or more of the counterparties could have a material adverse impact on the Fund's operations. Due to declines in the net assets of the Fund prior to August 31, 2009, one or more counterparties are entitled to terminate early but none has taken such action.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133


24


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund uses derivatives as a substitute for direct investment in securities or other assets. In particular, the Fund may use swaps (including credit default swaps) or other derivatives on an index, a single security or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue


25


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.


26


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Assets:  
Investments, at value (purchased
options)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on futures
contracts* 		     2,104,968       —       —       —       —       2,104,968    
Unrealized appreciation on forward
currency contracts		     —       1,212,185       —       —       —       1,212,185    
Unrealized appreciation on swap
agreements		     —       —       1,109,783       —       —       1,109,783    
Total   $ 2,104,968     $ 1,212,185     $ 1,109,783     $ —     $ —     $ 4,426,936    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on futures
contracts* 		     (78,236 )     —       —       —       —       (78,236 )  
Unrealized depreciation on forward
currency contracts		     —       (413,519 )     —       —       —       (413,519 )  
Unrealized depreciation on swap
agreements		     —       —       (960,257 )     —       —       (960,257 )  
Total   $ (78,236 )   $ (413,519 )   $ (960,257 )   $ —     $ —     $ (1,452,012 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


27


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     (2,582,734 )     —       —       —       —       (2,582,734 )  
Swap contracts     —       —       (42,600 )     —       —       (42,600 )  
Written options     —       —       —       —       —       —    
Forward currency contracts     —       1,954,641       —       —       —       1,954,641    
Total   $ (2,582,734 )   $ 1,954,641     $ (42,600 )   $ —     $ —     $ (670,693 )  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     1,666,148       —       —       —       —       1,666,148    
Swap contracts     —       —       180,031       —       —       180,031    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       11,504,111       —       —       —       11,504,111    
Total   $ 1,666,148     $ 11,504,111     $ 180,031     $ —     $ —     $ 13,350,290    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Futures   Swaps  
Average notional amount outstanding   $ 162,055,448     $ 244,076,186     $ 36,000,000    
Highest notional amount outstanding     180,541,615       451,555,746       36,000,000    
Lowest notional amount outstanding     149,158,171       113,841,668       36,000,000    

 

Other matters

GMO Special Purpose Holding Fund ("SPHF"), an investment of the Fund, has litigation pending against various entities related to the 2002 default of securities previously held by SPHF. The outcome of the lawsuits against the remaining defendants is not known and any potential recoveries are not reflected in the net asset value of SPHF. For the period ended August 31, 2009, the Fund received no distributions through SPHF in connection with settlement agreements related to that litigation.


28


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses); (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's Excluded Fund Fees and Expenses); and (c) the amount of fees and expenses incurred indirectly (through investment in other underlying funds) by the Fund through its (direct or indirect) investment in GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to such Fund equ al 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, 2009, 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		  
  0.022 %     0.005 %     0.010 %     0.037 %  

 

        


29


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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, 2009 was $1,764 and $1,012, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.

4.  Purchases and sales of securities

For the period ended August 31, 2009, 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   $ —     $ 178,867    
Investments (non-U.S. Government securities)     36,117,816       11,542,399    

 

Proceeds from sales of securities for in-kind transactions for the period ended August 31, 2009 were $18,714,234.

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 67.75% 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.

As of August 31, 2009, 2.45% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 29.96% of the Fund's shares were held by accounts for which the Manager had investment discretion.


30


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		  
Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     18,052     $ 114,154       251,099     $ 2,399,856    
Shares issued to shareholders
in reinvestment of distributions		     128,981       851,231       6,462,644       51,930,698    
Shares repurchased     (3,952,346 )     (25,135,048 )     (26,487,403 )     (210,236,300 )  
Redemption fees     —       83,993       —       550,622    
Net increase (decrease)     (3,805,313 )   $ (24,085,670 )     (19,773,660 )   $ (155,355,124 )  

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 6,547,297     $ 121,445     $ 686,730     $ 121,445     $ —     $ 7,907,457    
GMO Short-Duration
Collateral Fund		     121,140,551       —       11,232,639       859,158       —       102,559,652    
GMO Special Purpose
Holding Fund		     27,350       —       —       —       —       23,604    
GMO U.S. Treasury Fund     —       26,299,605       10,950,000       19,605       —       15,355,011    
GMO World Opportunity
Overlay Fund		     36,170,948       —       3,551,413       —       —       34,422,091 o   
Totals   $ 163,886,146     $ 26,421,050     $ 26,420,782     $ 1,000,208     $ —     $ 160,267,815    

 

o  The Fund received return of capital distributions in the amount of $3,017,029.


31


GMO International Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. On September 14, 2009, the Fund's redemption fee was eliminated.


32



GMO International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered information provided by the Manager addressing the Fund's performance, including a performance attribution analysis. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those p ersonnel 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. The


33


GMO International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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. The Trustees noted 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 of the underlying funds 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


34


GMO International Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


35


GMO International Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including 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, 2009 through August 31, 2009.

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     0.42 %   $ 1,000.00     $ 1,211.90     $ 2.34    
2) Hypothetical     0.42 %   $ 1,000.00     $ 1,023.09     $ 2.14    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, 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 Real Estate Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     97.9 %  
Short-Term Investments     2.2    
Other     (0.1 )  
      100.0 %  
Industry Summary   % of REIT Investments  
Health Care     14.2 %  
Shopping Centers     13.5    
Apartments     12.8    
Office Suburban     11.3    
Storage     8.5    
Diversified     7.6    
Industrial     7.3    
Office Central Business District     7.3    
Regional Malls     6.6    
Hotels     5.3    
Triple Net     4.0    
Manufactured Housing     1.0    
Outlets     0.6    
      100.0 %  

 


1



GMO Real Estate Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        REAL ESTATE INVESTMENTS — 97.9%  
        REAL ESTATE INVESTMENT TRUSTS — 97.9%  
        Apartments — 12.6%  
    3,000     American Campus Communities, Inc.     78,030    
    5,586     Apartment Investment & Management Co.-Class A     67,982    
    6,273     AvalonBay Communities, Inc.     404,169    
    5,500     BRE Properties, Inc.     155,485    
    3,200     Camden Property Trust     117,440    
    13,400     Equity Residential     365,954    
    1,730     Essex Property Trust, Inc.     129,075    
    2,900     Home Properties, Inc.     110,113    
    1,200     Investors Real Estate Trust     11,112    
    1,900     Mid-America Apartment Communities, Inc.     83,182    
    1,600     Post Properties, Inc.     27,264    
    6,781     UDR, Inc.     86,729    
    Total Apartments     1,636,535    
        Diversified — 7.4%  
    440     Alexander's, Inc.     124,652    
    4,300     Franklin Street Properties Corp.     61,103    
    11,559     Vornado Realty Trust     664,874    
    3,800     Washington Real Estate Investment Trust     102,448    
    1,900     Winthrop Realty Trust     17,385    
    Total Diversified     970,462    
        Health Care — 13.9%  
    20,700     HCP, Inc.     589,536    
    9,000     Health Care, Inc.     384,390    
    3,500     Healthcare Realty Trust, Inc.     75,775    
    1,200     LTC Properties, Inc.     30,564    
    5,000     Medical Properties Trust, Inc.     37,850    
    2,200     National Health Investors, Inc.     72,820    
    4,400     Nationwide Health Properties, Inc.     140,272    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Health Care — continued  
    6,900     Omega Healthcare Investors, Inc.     116,679    
    7,700     Senior Housing Properties Trust     154,462    
    300     Universal Health Realty Income Trust     10,077    
    5,100     Ventas, Inc.     199,971    
    Total Health Care     1,812,396    
        Hotels — 5.2%  
    5,000     DiamondRock Hospitality Co.     34,250    
    9,000     Hospitality Properties Trust     163,980    
    48,200     Host Hotels & Resorts, Inc.     480,554    
    Total Hotels     678,784    
        Industrial — 7.1%  
    8,300     AMB Property Corp.     189,489    
    5,500     Digital Realty Trust, Inc.     239,690    
    5,200     DuPont Fabros Technology, Inc.     68,016    
    2,000     EastGroup Properties, Inc.     75,280    
    31,938     ProLogis     355,151    
    Total Industrial     927,626    
        Manufactured Housing — 1.0%  
    2,800     Equity Lifestyle Properties, Inc.     112,700    
    1,100     Sun Communities, Inc.     19,646    
    Total Manufactured Housing     132,346    
        Office Central Business District — 7.1%  
    9,500     BioMed Realty Trust, Inc.     128,060    
    10,400     Boston Properties, Inc.     630,032    
    4,723     SL Green Realty Corp.     166,675    
    Total Office Central Business District     924,767    
        Office Suburban — 11.1%  
    3,300     Alexandria Real Estate Equities, Inc.     183,843    
    1,389     Brandywine Realty Trust     14,737    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Office Suburban — continued  
    4,800     Corporate Office Properties Trust     176,928    
    12,600     Duke Realty Corp.     145,152    
    4,600     Highwoods Properties, Inc.     135,102    
    18,600     HRPT Properties Trust     120,528    
    4,000     Kilroy Realty Corp.     110,840    
    8,900     Liberty Property Trust     291,653    
    6,000     Mack-Cali Realty Corp.     192,180    
    1,400     PS Business Parks, Inc.     74,102    
    Total Office Suburban     1,445,065    
        Outlets — 0.6%  
    2,000     Tanger Factory Outlet Centers, Inc.     75,240    
    Total Outlets     75,240    
        Regional Malls — 6.5%  
    16,531     CBL & Associates Properties, Inc.     154,896    
    2,053     Macerich Co. (The)     58,839    
    9,479     Simon Property Group, Inc.     603,054    
    900     Taubman Centers, Inc.     28,503    
    Total Regional Malls     845,292    
        Shopping Centers — 13.2%  
    1,884     Acadia Realty Trust     28,844    
    9,300     Cedar Shopping Centers, Inc.     59,799    
    16,297     Developers Diversified Realty Corp.     127,768    
    5,600     Equity One, Inc.     88,200    
    3,600     Federal Realty Investment Trust     224,532    
    12,200     Inland Real Estate Corp.     102,236    
    36,358     Kimco Realty Corp.     456,293    
    4,500     Ramco-Gershenson Properties Trust     47,340    
    7,300     Regency Centers Corp.     244,915    
    1,400     Saul Centers, Inc.     45,626    
    3,400     Urstadt Biddle Properties, Inc.     52,598    
    12,000     Weingarten Realty Investors     238,320    
    Total Shopping Centers     1,716,471    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Storage — 8.3%  
    5,500     Extra Space Storage, Inc.     54,450    
    14,014     Public Storage     988,688    
    1,400     Sovran Self Storage, Inc.     41,146    
    Total Storage     1,084,284    
        Triple Net — 3.9%  
    2,800     Entertainment Properties Trust     87,808    
    3,000     Getty Realty Corp.     70,770    
    202     Lexington Realty Trust     941    
    8,100     National Retail Properties, Inc.     166,212    
    7,000     Realty Income Corp.     178,850    
    Total Triple Net     504,581    
    TOTAL REAL ESTATE INVESTMENT TRUSTS (COST $18,015,450)     12,753,849    
    TOTAL REAL ESTATE INVESTMENTS (COST $18,015,450)     12,753,849    
        SHORT-TERM INVESTMENTS — 2.2%  
        Money Market Funds — 2.2%  
    280,846     State Street Institutional Treasury Money Market Fund-Institutional Class     280,846    
    TOTAL SHORT-TERM INVESTMENTS (COST $280,846)     280,846    
            TOTAL INVESTMENTS — 100.1%
(Cost $18,296,296)		     13,034,695    
            Other Assets and Liabilities (net) — (0.1%)     (12,171 )  
    TOTAL NET ASSETS — 100.0%   $ 13,022,524    

 

See accompanying notes to the financial statements.


5



GMO Real Estate Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $18,296,296) (Note 2)   $ 13,034,695    
Dividends receivable     25,020    
Receivable for expenses reimbursed by Manager (Note 3)     5,146    
Total assets     13,064,861    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     3,547    
Shareholder service fee     1,612    
Accrued expenses     37,178    
Total liabilities     42,337    
Net assets   $ 13,022,524    
Net assets consist of:  
Paid-in capital   $ 21,961,994    
Accumulated undistributed net investment income     301,873    
Accumulated net realized loss     (3,979,742 )  
Net unrealized depreciation     (5,261,601 )  
    $ 13,022,524    
Net assets attributable to:  
Class III shares   $ 13,022,524    
Shares outstanding:  
Class III     2,393,753    
Net asset value per share:  
Class III   $ 5.44    

 

See accompanying notes to the financial statements.


6


GMO Real Estate Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends   $ 334,977    
Total investment income     334,977    
Expenses:  
Management fee (Note 3)     17,669    
Shareholder service fee – Class III (Note 3)     8,031    
Audit and tax fees     28,153    
Custodian, fund accounting agent and transfer agent fees     2,760    
Registration fees     1,288    
Legal fees     184    
Trustees fees and related expenses (Note 3)     60    
Total expenses     58,145    
Fees and expenses reimbursed by Manager (Note 3)     (32,384 )  
Expense reductions (Note 2)     (2 )  
Net expenses     25,759    
Net investment income (loss)     309,218    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (2,336,114 )  
Change in net unrealized appreciation (depreciation) on investments     7,360,240    
Net realized and unrealized gain (loss)     5,024,126    
Net increase (decrease) in net assets resulting from operations   $ 5,333,344    

 

See accompanying notes to the financial statements.


7


GMO Real Estate Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 309,218     $ 763,238    
Net realized gain (loss)     (2,336,114 )     (1,621,100 )  
Change in net unrealized appreciation (depreciation)     7,360,240       (9,140,643 )  
Net increase (decrease) in net assets from operations     5,333,344       (9,998,505 )  
Distributions to shareholders from:  
Net investment income  
Class III     (140,914 )     (728,184 )  
Net realized gains  
Class III     —       (312,412 )  
      (140,914 )     (1,040,596 )  
Net share transactions (Note 7):  
Class III     (469,315 )     (126,775 )  
Total increase (decrease) in net assets     4,723,115       (11,165,876 )  
Net assets:  
Beginning of period     8,299,409       19,465,285    
End of period (including accumulated undistributed net investment
income of $301,873 and $133,569, respectively)		   $ 13,022,524     $ 8,299,409    

 

See accompanying notes to the financial statements.


8



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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 3.34     $ 7.85     $ 12.87     $ 12.27     $ 14.54     $ 14.65    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.13       0.31       0.40       0.38       0.61       0.59    
Net realized and unrealized
gain (loss)		     2.03       (4.40 )     (3.29 )     2.72       3.24       1.55    
Total from investment
operations		     2.16       (4.09 )     (2.89 )     3.10       3.85       2.14    
Less distributions to shareholders:  
From net investment income     (0.06 )     (0.29 )     (0.14 )     (0.31 )     (0.40 )     (0.87 )  
From net realized gains     —       (0.13 )     (1.99 )     (2.19 )     (5.72 )     (1.38 )  
Total distributions     (0.06 )     (0.42 )     (2.13 )     (2.50 )     (6.12 )     (2.25 )  
Net asset value, end of period   $ 5.44     $ 3.34     $ 7.85     $ 12.87     $ 12.27     $ 14.54    
Total Return(a)      65.26 %**      (54.45 )%     (24.04 )%     29.76 %     28.89 %     16.01 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 13,023     $ 8,299     $ 19,465     $ 37,650     $ 41,391     $ 235,837    
Net expenses to average daily
net assets		     0.48 %(b)*      0.48 %(b)      0.48 %     0.48 %     0.48 %     0.48 %  
Net investment income to
average daily net assets		     5.78 %*      4.44 %     3.78 %     3.24 %     3.91 %     4.13 %  
Portfolio turnover rate     19 %**      29 %     49 %     43 %     52 %     134 %  
Fees and expenses reimbursed
and/or waived by the Manager
to average daily net assets:		     0.60 %*      0.41 %     0.22 %     0.28 %     0.25 %     0.25 %  

 

(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.


9



GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Real Estate Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, 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. The Fund has a fundamental policy to concentrate its investments in real estate-related investments. Under normal circumstances, the Fund invests at least 80% of its assets in real estate investment trusts ("REITs") and other real estate-related investments (which includes REITs and companies that derive at least 50% of their revenues and profits from, or have at least 50% of their assets invested in, (i) the development, construction, management, or sale of real estate; (ii) real estate holdings; or (iii) products or services related to the real estate industry). The Fund generally seeks to be fully invested and normally does not take te mporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, futures, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury 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 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the


10


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

Asset Valuation Inputs   Investments
in Securities		   Other Financial
Instruments		  
Level 1 - Quoted Prices   $ 12,753,849     $ —    
Level 2 - Other Significant Observable Inputs     280,846       —    
Level 3 - Significant Unobservable Inputs     —       —    
Total   $ 13,034,695     $ —    

 


11


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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   $ —     $ —    

 

All of the Fund's common stocks are classified as Level 1. Please refer to the Schedule of Investments for a more detailed categorization of common stocks. All short-term investments are classified as Level 2.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. The Fund had no futures contracts outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants at the end of the period.


12


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 carryforwards 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $730,582.

As of February 28, 2009, 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:

2/28/2017   $ (517,045 )  
Total   $ (517,045 )  

 


13


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 18,995,652     $ 316,327     $ (6,277,284 )   $ (5,960,957 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 distributions received in excess of income are recorded as realized gains. Dividends representing a return of capital are reflected as a reduction of cost, when the amount of the return of capital is conclusively determined. In determining the net gain or loss on securities sold, the Fund uses the identified cost basis for the purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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


14


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

average daily cash balances the Fund maintains with State Street. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Real Estate Risk — Real estate-related investments may decline in value as a result of factors affecting the real estate industry, such as the supply of real property in certain markets, changes in zoning laws, delays in completion of construction, changes in real estate values, changes in property taxes, levels of occupancy, adequacy of rent to cover operating expenses, and local and regional market conditions. The value of real estate-related investments also may be affected by changes in interest rates and social and economic trends. REITs are subject to substantial cash flow dependency, defaults by borrowers, and the risk of failing to qualify for the special tax treatment accorded REITs under the Internal Revenue Code of 1986 and/or to maintain exempt status under the 1940 Act.

• Focused Investment Risk — Focusing investments in sectors and industries with high positive correlations to one another creates additional risk. This risk is particularly pronounced for the Fund, which concentrates its investments in real estate-related investments, making the Fund's net asset value more susceptible to economic, market, political, and other developments affecting the real estate industry.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

Other principal risks of an investment in the Fund include Market Risk — Value Securities (risk that the price of the Fund's securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value), Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments in companies with smaller market capitalizations), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally),


15


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.33% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds


16


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

0.33% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.33% of the Fund's average daily net assets.

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, 2009 was $60 and $0, respectively. The Fund paid no remuneration 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, 2009 aggregated $1,943,193 and $2,291,583, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 84.44% 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.

As of August 31, 2009, 0.54% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 73.35% of the Fund's shares were held by accounts for which the Manager had investment discretion.


17


GMO Real Estate Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     27,442     $ 81,742       37,799     $ 261,394    
Shares issued to shareholders
in reinvestment of distributions		     5,387       21,654       62,656       420,430    
Shares repurchased     (123,019 )     (572,711 )     (96,908 )     (808,599 )  
Net increase (decrease)     (90,190 )   $ (469,315 )     3,547     $ (126,775 )  

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


18



GMO Real Estate Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The


19


GMO Real Estate Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


20


GMO Real Estate Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


21


GMO Real Estate Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.48 %   $ 1,000.00     $ 1,652.60     $ 3.21    
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, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


22



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     97.7 %  
Short-Term Investments     2.2    
Preferred Stocks     0.0    
Rights and Warrants     0.0    
Other     0.1    
      100.0 %  
Country Summary   % of Equity Investments  
Japan     27.1 %  
United Kingdom     23.0    
France     10.8    
Switzerland     7.8    
Italy     5.1    
Germany     5.0    
Australia     3.1    
Sweden     3.0    
Spain     2.9    
Netherlands     2.4    
Canada     1.9    
Belgium     1.8    
Hong Kong     1.5    
Singapore     1.4    
Greece     0.9    
Finland     0.6    
Denmark     0.5    
Ireland     0.5    
New Zealand     0.4    
Austria     0.1    
Norway     0.1    
Portugal     0.1    
Malta     0.0    
      100.0 %  

 


1


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Industry Group Summary   % of Equity Investments  
Pharmaceuticals, Biotechnology & Life Sciences     15.6 %  
Banks     13.8    
Energy     8.5    
Materials     6.9    
Telecommunication Services     6.1    
Capital Goods     5.3    
Food, Beverage & Tobacco     5.2    
Automobiles & Components     4.9    
Utilities     4.8    
Diversified Financials     4.5    
Retailing     4.4    
Food & Staples Retailing     2.7    
Consumer Durables & Apparel     2.7    
Technology Hardware & Equipment     2.2    
Insurance     1.9    
Transportation     1.7    
Software & Services     1.6    
Household & Personal Products     1.5    
Media     1.3    
Health Care Equipment & Services     1.2    
Real Estate     1.1    
Semiconductors & Semiconductor Equipment     0.9    
Consumer Services     0.8    
Commercial & Professional Services     0.4    
      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, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 97.7%  
        Australia — 3.1%  
    116,687     Australia and New Zealand Banking Group Ltd     2,096,260    
    301,186     BlueScope Steel Ltd     728,675    
    158,971     Foster's Group Ltd     735,366    
    1,718,063     GPT Group (REIT)     894,867    
    173,800     Lihir Gold Ltd *      402,200    
    24,255     Macquarie Group Ltd     1,041,247    
    258,757     Macquarie Infrastructure Group     290,454    
    1,221,102     Macquarie Office Trust     278,493    
    74,350     National Australia Bank Ltd     1,788,955    
    30,190     Newcrest Mining Ltd     769,181    
    39,252     Origin Energy Ltd     507,705    
    26,178     QBE Insurance Group Ltd     505,888    
    5,784     Rio Tinto Ltd     274,915    
    442,677     Stockland (REIT)     1,408,751    
    163,892     Suncorp-Metway Ltd     1,083,824    
    75,951     TABCORP Holdings Ltd     430,230    
    301,138     Telstra Corp Ltd     829,082    
    56,214     Woodside Petroleum Ltd     2,332,506    
    51,116     Woolworths Ltd     1,208,497    
    Total Australia     17,607,096    
        Austria — 0.1%  
    18,071     OMV AG     713,476    
        Belgium — 1.7%  
    74,299     Anheuser-Busch InBev NV     3,212,436    
    21,002     Belgacom SA     788,900    
    6,444     Colruyt SA     1,479,556    
    16,879     Delhaize Group     1,131,934    
    133,416     Dexia SA *      1,144,300    
    233,806     Fortis *      997,408    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Belgium — continued  
    2,616     Mobistar SA     168,591    
    9,267     Solvay SA     977,053    
    Total Belgium     9,900,178    
        Canada — 1.9%  
    50,100     Bank of Montreal     2,425,485    
    9,400     Bank of Nova Scotia     393,774    
    9,600     Canadian National Railway Co     464,062    
    11,500     Canadian Pacific Railway Ltd     550,655    
    22,800     Magna International Inc Class A     1,033,003    
    33,200     National Bank of Canada     1,863,567    
    34,600     Sun Life Financial Inc     1,024,015    
    76,416     Suncor Energy Inc     2,337,677    
    22,200     Teck Cominco Ltd Class B *      535,761    
    Total Canada     10,627,999    
        Denmark — 0.5%  
    32,757     Danske Bank A/S *      878,174    
    34,338     Novo-Nordisk A/S Class B     2,094,931    
    Total Denmark     2,973,105    
        Finland — 0.6%  
    98,099     Nokia Oyj     1,377,097    
    19,800     Rautaruukki Oyj     463,571    
    30,266     Sampo Oyj Class A     725,465    
    38,689     Tieto Oyj     708,185    
    Total Finland     3,274,318    
        France — 10.5%  
    29,738     Air France-KLM *      454,994    
    8,951     Air Liquide SA     957,472    
    41,425     ArcelorMittal     1,481,533    
    99,312     BNP Paribas     8,007,707    
    3,285     Bongrain SA *      235,349    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        France — continued  
    8,940     Carrefour SA     422,196    
    9,357     Casino Guichard-Perrachon SA     710,017    
    24,714     Compagnie de Saint-Gobain     1,116,564    
    12,581     Dassault Systemes SA     644,394    
    29,264     Essilor International SA     1,583,254    
    1,804     Esso SAF     246,935    
    25,622     European Aeronautic Defense and Space Co NV     532,893    
    17,895     Eutelsat Communications     479,189    
    104,929     France Telecom SA     2,668,561    
    15,997     GDF Suez     676,166    
    16,002     GDF Suez VVPR Strip *      23    
    5,048     Gemalto NV *      210,398    
    12,530     Hermes International     1,857,634    
    3,134     Iliad SA     321,564    
    10,797     L'Oreal SA     1,065,852    
    7,859     Lafarge SA     669,735    
    5,550     Nexans SA     406,604    
    4,045     NYSE Euronext     113,544    
    2,680     Pernod-Ricard SA     209,344    
    43,449     Peugeot SA *      1,261,123    
    7,159     PPR     833,407    
    19,398     Publicis Groupe     714,954    
    49,401     Renault SA *      2,229,055    
    249,394     Sanofi-Aventis     16,980,670    
    29,745     SES     583,957    
    62,818     Societe Generale     5,077,555    
    53,296     STMicroelectronics NV     463,179    
    13,959     Technip SA     865,643    
    144,742     Thomson *      198,699    
    81,861     Total SA     4,697,161    
    4,609     Unibail-Rodamco SE (REIT)     913,613    
    8,847     Vinci SA     476,189    
    Total France     60,367,127    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Germany — 4.9%  
    20,123     Adidas AG     949,075    
    2,342     Allianz SE (Registered)     271,355    
    21,246     Aurubis AG     810,153    
    19,180     BASF AG     1,002,367    
    38,538     Bayerische Motoren Werke AG     1,758,947    
    6,648     Beiersdorf AG     337,492    
    6,486     Demag Cranes AG     195,874    
    47,018     Deutsche Bank AG (Registered)     3,193,328    
    5,360     Deutsche Boerse AG     409,959    
    43,986     Deutsche Post AG (Registered)     760,461    
    194,073     Deutsche Telekom AG (Registered)     2,584,067    
    37,427     E.ON AG     1,585,847    
    20,830     Fresenius Medical Care AG & Co     934,641    
    28,154     Gildemeister AG     357,193    
    36,072     Hannover Rueckversicherung AG (Registered) *      1,589,167    
    51,526     Heidelberger Druckmaschinen AG *      451,439    
    68,857     Infineon Technologies AG *      362,745    
    35,099     Kloeckner & Co AG *      938,409    
    17,999     MTU Aero Engines Holding AG     761,058    
    4,716     Muenchener Rueckversicherungs-Gesellschaft AG (Registered)     704,686    
    7,915     RWE AG     733,930    
    17,623     Salzgitter AG     1,682,011    
    58,895     SAP AG     2,875,705    
    8,384     SGL Carbon SE *      310,395    
    6,911     Software AG     530,415    
    37,961     Suedzucker AG     738,639    
    23,291     ThyssenKrupp AG     794,333    
    2,371     Vossloh AG     279,851    
    Total Germany     27,903,542    
        Greece — 0.9%  
    49,615     Alpha Bank A.E. *      823,829    
    68,847     National Bank of Greece SA *      2,162,434    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Greece — continued  
    63,941     OPAP SA     1,561,707    
    20,009     Public Power Corp SA *      471,843    
    Total Greece     5,019,813    
        Hong Kong — 1.5%  
    544,500     BOC Hong Kong Holdings Ltd     1,087,506    
    499,400     CLP Holdings Ltd     3,341,494    
    172,500     Esprit Holdings Ltd     1,045,125    
    370,000     Hong Kong Electric Holdings Ltd     2,068,355    
    60,700     Hong Kong Exchanges and Clearing Ltd     1,055,997    
    Total Hong Kong     8,598,477    
        Ireland — 0.5%  
    47,729     C&C Group Plc     178,182    
    80,660     CRH Plc     2,063,758    
    9,095     DCC Plc     220,587    
    17,788     Kerry Group Plc Class A     465,339    
    Total Ireland     2,927,866    
        Italy — 5.0%  
    27,884     Ansaldo STS SPA     563,810    
    29,737     Atlantia SPA     663,775    
    239,678     Banca Monte dei Paschi di Siena SPA     504,684    
    90,968     Bulgari SPA     660,717    
    422,988     Enel SPA     2,499,785    
    323,196     ENI SPA     7,679,318    
    57,923     Fiat SPA *      688,177    
    223,415     Mediaset SPA     1,472,764    
    355,006     Parmalat SPA     912,869    
    37,248     Saipem SPA     1,001,277    
    250,459     Snam Rete Gas SPA     1,164,949    
    870,316     Telecom Italia SPA     1,410,428    
    1,117,630     Telecom Italia SPA-Di RISP     1,269,731    
    36,738     Tenaris SA     538,522    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Italy — continued  
    266,586     Terna SPA     983,584    
    1,738,874     UniCredit SPA *      6,316,574    
    Total Italy     28,330,964    
        Japan — 26.5%  
    9,500     ABC-Mart Inc     275,675    
    98,550     Aiful Corp     294,207    
    22,800     Aisin Seiki Co Ltd     570,101    
    13,000     Asahi Breweries Ltd     225,574    
    74,000     Asahi Glass Co Ltd     643,638    
    181,000     Asahi Kasei Corp     870,512    
    52,800     Astellas Pharma Inc     2,110,407    
    15,300     Bridgestone Corp     279,217    
    23,500     Canon Inc     898,327    
    53,600     Chubu Electric Power Co Inc     1,246,222    
    47,500     Chugai Pharmaceutical Co Ltd     967,455    
    12,100     Chugoku Electric Power Co Inc     265,842    
    205,000     Cosmo Oil Co Ltd     629,220    
    45,800     Culture Convenience Club Co Ltd     338,387    
    63,800     Daiei Inc *      282,998    
    184,000     Daikyo Inc *      478,273    
    19,200     Daito Trust Construction Co Ltd     914,988    
    165,000     Daiwa Securities Group Inc     1,016,185    
    99,000     Daiwabo Co Ltd     453,742    
    27,400     Denso Corp     797,396    
    20,700     Don Quijote Co Ltd     495,515    
    142,000     Dowa Holdings Co Ltd     799,418    
    108,000     Ebara Corp *      483,832    
    29,900     Eisai Co Ltd     1,092,691    
    22,600     Electric Power Development Co Ltd     685,442    
    65,300     Elpida Memory Inc *      1,018,189    
    9,700     FamilyMart Co Ltd     300,131    
    27,700     Fast Retailing Co Ltd     3,316,552    
    355,000     Fuji Heavy Industries Ltd     1,534,014    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    23,500     Fuji Oil Co Ltd     329,749    
    10,500     FujiFilm Holdings Corp     312,499    
    94,000     Fujitsu Ltd     631,165    
    49,000     Furukawa Electric Co Ltd (The)     216,540    
    85,000     GS Yuasa Corp     740,216    
    84,000     Hankyu Hanshin Holdings Inc     402,203    
    119,000     Hanwa Co Ltd     468,701    
    29,100     Hitachi Construction Machinery     589,395    
    254,000     Hitachi Ltd     893,502    
    194,000     Honda Motor Co Ltd     6,082,977    
    30,800     Hosiden Corp     455,105    
    26,700     Ibiden Co Ltd     947,973    
    110     INPEX Corp     895,715    
    137,000     Iseki & Co Ltd *      623,352    
    158,000     Itochu Corp     1,118,332    
    59,600     JFE Holdings Inc     2,080,001    
    238,000     Kajima Corp     667,280    
    122     Kakaku.com Inc     455,941    
    101,000     Kamigumi Co Ltd     855,053    
    32,400     Kansai Electric Power Co Inc     744,550    
    100,000     Kao Corp     2,532,734    
    216,000     Kawasaki Kisen Kaisha Ltd     946,910    
    481     Kenedix Inc *      232,069    
    72,000     Kintetsu Corp     311,792    
    187,000     Kobe Steel Ltd     345,487    
    35,500     Komatsu Ltd     639,596    
    7,400     Kyocera Corp     614,993    
    17,000     Kyudenko Corp     111,959    
    42,700     Kyushu Electric Power Co Inc     942,915    
    23,500     Lawson Inc     1,017,533    
    49,900     Leopalace21 Corp     451,361    
    231,000     Marubeni Corp     1,147,170    
    712,000     Mazda Motor Corp     1,976,096    
    168,000     Mitsubishi Chemical Holdings Corp     762,623    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    71,500     Mitsubishi Corp     1,445,365    
    212,000     Mitsubishi Motors Corp *      384,876    
    388,000     Mitsubishi UFJ Financial Group Inc     2,466,620    
    23,450     Mitsubishi UFJ Lease & Finance Co Ltd     743,145    
    298,000     Mitsui Mining & Smelting Co Ltd *      850,435    
    217,000     Mitsui OSK Lines Ltd     1,383,891    
    1,012,100     Mizuho Financial Group Inc     2,462,344    
    19,500     Murata Manufacturing Co Ltd     924,326    
    21,000     Nagase & Co     250,670    
    178     Net One Systems Co Ltd     292,717    
    26,000     NGK Insulators Ltd     604,996    
    2,700     Nintendo Co Ltd     731,763    
    19,000     Nippon Corp     164,331    
    45,000     Nippon Electric Glass Co Ltd     466,828    
    14,000     Nippon Meat Packers Inc     168,999    
    444,500     Nippon Mining Holdings Inc     2,210,692    
    412,000     Nippon Oil Corp     2,352,373    
    25,900     Nippon Paper Group Inc     761,202    
    61,300     Nippon Telegraph & Telephone Corp     2,728,952    
    115,000     Nippon Yakin Koguo Co Ltd     671,344    
    360,000     Nippon Yusen KK     1,557,300    
    817,200     Nissan Motor Co Ltd     5,701,889    
    105,000     Nisshinbo Holdings Inc     1,225,068    
    9,550     Nitori Co Ltd     737,750    
    16,100     Nitto Denko Corp     488,251    
    59,700     Nomura Holdings Inc     529,017    
    2,167     NTT Docomo Inc     3,336,349    
    162,000     Obayashi Corp     728,988    
    20,000     Odakyu Electric Railway Co Ltd     179,517    
    145,000     OJI Paper Co Ltd     683,203    
    12,000     Ono Pharmaceutical Co Ltd     589,892    
    10,800     Oriental Land Co Ltd     730,153    
    44,830     ORIX Corp     3,435,113    
    514,000     Osaka Gas Co Ltd     1,776,393    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    180,000     Pacific Metals Co Ltd     1,507,437    
    11,630     Point Inc     710,938    
    1,169     Rakuten Inc     706,146    
    145,600     Resona Holdings Inc     1,983,279    
    103,400     Ricoh Company Ltd     1,487,541    
    9,400     Rohm Co Ltd     634,462    
    15,200     Ryohin Keikaku Co Ltd     693,670    
    9,700     Ryosan Co     246,346    
    36,600     Sankyo Co Ltd     2,302,153    
    129,000     Sanyo Electric Co Ltd *      347,726    
    118,800     Sega Sammy Holdings Inc     1,547,860    
    205,600     Seven & I Holdings Co Ltd     4,962,087    
    101,000     Sharp Corp     1,165,872    
    4,600     Shimamura Co Ltd     411,696    
    21,800     Shin-Etsu Chemical Co Ltd     1,287,312    
    36,900     SoftBank Corp     826,263    
    597,800     Sojitz Corp     1,277,380    
    79,800     SUMCO Corp     1,627,327    
    129,200     Sumitomo Corp     1,321,841    
    109,600     Sumitomo Electric Industries Ltd     1,414,072    
    523,000     Sumitomo Metal Industries Ltd     1,308,790    
    110,000     Sumitomo Metal Mining Co Ltd     1,692,472    
    305,423     Sumitomo Trust & Banking Co Ltd     1,863,090    
    34,200     Suzuki Motor Corp     815,049    
    332,000     Taisei Corp     727,795    
    38,000     Taisho Pharmaceutical Co Ltd     745,103    
    57,000     Taiyo Yuden Co Ltd     678,868    
    69,500     Takeda Pharmaceutical Co Ltd     2,795,789    
    62,790     Takefuji Corp     320,793    
    25,300     Tohoku Electric Power Co Inc     547,580    
    94,200     Tokyo Electric Power Co Inc (The)     2,453,793    
    16,400     Tokyo Electron Ltd     890,702    
    400,000     Tokyo Gas Co Ltd     1,601,814    
    96,500     Tokyo Steel Manufacturing Co     1,270,442    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    114,000     Tokyo Tatemono Co Ltd     673,407    
    69,000     TonenGeneral Sekiyu KK     659,673    
    150,000     Tosoh Corp     434,842    
    28,000     Toyo Suisan Kaisha Ltd     712,599    
    43,100     Toyota Motor Corp     1,837,536    
    44,900     Toyota Tsusho Corp     727,542    
    10,900     Ulvac Inc     313,534    
    6,900     Unicharm Corp     618,201    
    96,600     UNY Co Ltd     816,383    
    11,210     USS Co Ltd     705,824    
    2,213     Yahoo Japan Corp     751,937    
    48,400     Yamaha Motor Co Ltd     570,834    
    Total Japan     151,588,189    
        Malta — 0.0%  
    1,718,063     BGP Holding Plc *      —    
        Netherlands — 2.4%  
    319,579     Aegon NV *      2,409,287    
    43,506     Heineken NV     1,840,323    
    326,900     ING Groep NV *      4,928,984    
    124,002     Koninklijke Ahold NV     1,456,240    
    29,921     Koninklijke DSM NV     1,092,186    
    52,954     Reed Elsevier NV     562,625    
    42,526     Unilever NV     1,191,484    
    Total Netherlands     13,481,129    
        New Zealand — 0.4%  
    160,177     Fletcher Building Ltd     861,856    
    624,496     Telecom Corp of New Zealand     1,172,791    
    Total New Zealand     2,034,647    
        Norway — 0.1%  
    26,000     DnB NOR ASA *      266,935    

 

See accompanying notes to the financial statements.


12


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Norway — continued  
    15,144     Frontline Ltd     341,133    
    Total Norway     608,068    
        Portugal — 0.1%  
    79,046     Portugal Telecom SGPS SA     819,629    
        Singapore — 1.3%  
    741,000     Golden Agri-Resources Ltd *      244,244    
    661,500     Neptune Orient Lines Ltd     739,543    
    204,000     Oversea-Chinese Banking Corp Ltd     1,095,906    
    553,000     SembCorp Marine Ltd     1,184,835    
    186,000     Singapore Exchange Ltd     1,079,441    
    150,000     Singapore Press Holdings Ltd     380,843    
    939,670     Singapore Telecommunications     2,048,241    
    80,000     United Overseas Bank Ltd     927,902    
    Total Singapore     7,700,955    
        Spain — 2.8%  
    8,317     ACS Actividades de Construccion y Servicios SA     429,445    
    107,791     Banco Bilbao Vizcaya Argentaria SA     1,916,449    
    89,019     Banco Popular Espanol SA     959,483    
    307,005     Banco Santander SA     4,726,387    
    25,020     Inditex SA     1,364,508    
    90,534     Repsol YPF SA     2,250,286    
    175,272     Telefonica SA     4,431,750    
    Total Spain     16,078,308    
        Sweden — 2.9%  
    24,159     Assa Abloy AB Class B     388,112    
    158,286     Boliden AB     1,630,379    
    33,006     Electrolux AB Series B *      686,105    
    221,287     Ericsson LM B Shares     2,123,396    
    84,819     Hennes & Mauritz AB Class B     4,709,528    
    22,336     Investor AB Class B     416,509    

 

See accompanying notes to the financial statements.


13


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Sweden — continued  
    191,944     Nordea Bank AB     2,013,279    
    140,709     Skandinaviska Enskilda Banken AB Class A *      992,324    
    16,858     Skanska AB Class B     244,734    
    42,612     SKF AB Class B     652,903    
    41,476     Svenska Cellulosa AB Class B     542,171    
    58,100     Svenska Handelsbanken AB Class A     1,526,907    
    47,379     Swedbank AB Class A *      497,466    
    20,063     Swedish Match AB     387,326    
    Total Sweden     16,811,139    
        Switzerland — 7.6%  
    8,365     Actelion Ltd (Registered) *      483,331    
    2,523     Bobst Group AG (Registered) *      104,520    
    51,153     Compagnie Financiere Richemont SA Class A     1,396,355    
    68,981     Credit Suisse Group AG (Registered)     3,519,341    
    181,542     Nestle SA (Registered)     7,558,152    
    336,231     Novartis AG (Registered)     15,618,977    
    46,276     Roche Holding AG (Non Voting)     7,370,643    
    6,641     Swatch Group AG     1,435,575    
    2,245     Swisscom AG (Registered)     777,922    
    2,527     Syngenta AG (Registered)     593,958    
    20,390     Synthes Inc     2,388,923    
    121,550     UBS AG (Registered) *      2,237,666    
    Total Switzerland     43,485,363    
        United Kingdom — 22.4%  
    151,214     3i Group Plc     739,921    
    79,832     Amlin Plc     477,136    
    74,745     Antofagasta Plc     923,329    
    304,107     AstraZeneca Plc     14,111,993    
    57,777     Autonomy Corp Plc *      1,218,548    
    33,712     BAE Systems Plc     170,320    
    1,690,063     Barclays Plc *      10,345,270    
    209,639     BG Group Plc     3,439,574    

 

See accompanying notes to the financial statements.


14


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    242,489     BP Plc     2,078,276    
    116,923     British American Tobacco Plc     3,552,739    
    536,129     BT Group Plc     1,216,711    
    126,276     Burberry Group Plc     989,010    
    275,515     Cable & Wireless Plc     662,289    
    195,670     Cadbury Plc     1,837,265    
    64,189     Capita Group Plc     709,340    
    212,432     Centrica Plc     868,177    
    197,295     Cobham Plc     646,438    
    149,646     Compass Group Plc     790,378    
    165,679     Diageo Plc     2,563,899    
    116,587     Drax Group Plc     905,996    
    1,342,512     DSG International Plc *      604,104    
    99,270     Experian Plc     830,736    
    1,155,815     GlaxoSmithKline Plc     22,570,513    
    386,361     Home Retail Group Plc     1,947,740    
    184,797     HSBC Holdings Plc     1,997,382    
    23,999     Imperial Tobacco Group Plc     673,131    
    26,347     Intertek Group Plc     516,237    
    86,979     J Sainsbury Plc     458,825    
    42,419     Kazakhmys Plc     673,195    
    353,846     Kingfisher Plc     1,212,293    
    1,886,864     Lloyds Banking Group Plc *      3,378,646    
    246,715     Marks & Spencer Group Plc     1,357,161    
    71,343     Next Plc     1,892,400    
    176,774     Old Mutual Plc     268,035    
    84,929     Pearson Plc     1,033,105    
    42,347     Prudential Plc     366,311    
    74,819     Reckitt Benckiser Group Plc     3,459,442    
    165,891     Reed Elsevier Plc     1,200,047    
    831,066     Royal Bank of Scotland Group Plc *      769,676    
    188,582     Royal Dutch Shell Group Class A (Amsterdam)     5,230,452    
    7,678     Royal Dutch Shell Plc A Shares (London)     212,361    
    158,745     Royal Dutch Shell Plc B Shares (London)     4,283,025    

 

See accompanying notes to the financial statements.


15


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    240,203     RSA Insurance Group Plc     507,507    
    156,433     Sage Group Plc     559,350    
    79,519     Scottish & Southern Energy Plc     1,443,475    
    36,302     Signet Jewelers Ltd     858,711    
    157,015     Smith & Nephew Plc     1,329,412    
    29,186     SSL International Plc     264,242    
    98,792     Standard Chartered Plc     2,229,886    
    241,841     Tesco Plc     1,472,143    
    11,935     Thomson Reuters Plc     374,448    
    94,798     Travis Perkins Plc     1,236,871    
    106,015     Tullow Oil Plc     1,846,177    
    36,764     Unilever Plc     1,004,611    
    20,868     Vedanta Resources Plc     602,731    
    2,917,045     Vodafone Group Plc     6,311,972    
    253,927     William Hill Plc     761,670    
    80,496     Wolseley Plc *      1,883,682    
    251,559     Wolseley Plc (Deferred)     —    
    39,772     WPP Plc     332,406    
    164,910     Xstrata Plc     2,187,920    
    Total United Kingdom     128,388,640    
    TOTAL COMMON STOCKS (COST $540,780,882)     559,240,028    
        PREFERRED STOCKS — 0.0%  
        Germany — 0.0%  
    5,825     Henkel AG & Co KGaA 1.85%     230,215    
    TOTAL PREFERRED STOCKS (COST $168,104)     230,215    

 

See accompanying notes to the financial statements.


16


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 2.2%  
EUR     2,090,665     Allied Irish Bank Time Deposit, 0.06%, due 09/01/09     2,997,178    
EUR     1,589,906     Banco Santander Time Deposit, 0.06%, due 09/01/09     2,279,289    
CAD     44,843     Bank of America Time Deposit, 0.04%, due 09/01/09     40,962    
EUR     2,090,665     Bank of Ireland Time Deposit, 0.06%, due 09/01/09     2,997,178    
CHF     10,802     Brown Brothers Harriman Time Deposit, 0.02%, due 09/01/09     10,201    
DKK     52,405     Brown Brothers Harriman Time Deposit, 0.30%, due 09/01/09     10,093    
HKD     77,503     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,000    
NZD     14,878     Brown Brothers Harriman Time Deposit, 1.50%, due 09/01/09     10,210    
SEK     72,229     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,147    
AUD     91,684     Deutsche Bank Time Deposit, 2.17%, due 09/01/09     77,491    
USD     664,458     DnB Nor Bank Time Deposit, 0.03%, due 09/01/09     664,458    
JPY     7,177,600     HSBC Bank (Hong Kong) Time Deposit, 0.01%, due 09/01/09     77,137    
EUR     2,090,665     ING Bank Time Deposit, 0.06%, due 09/01/09     2,997,178    
NOK     128,661     JPMorgan Chase Time Deposit, 0.35%, due 09/01/09     21,381    
SGD     79,260     JPMorgan Chase Time Deposit, 0.01%, due 09/01/09     55,005    
    TOTAL SHORT-TERM INVESTMENTS (COST $12,257,908)     12,257,908    
            TOTAL INVESTMENTS — 99.9%
(Cost $553,206,894)		     571,728,151    
            Other Assets and Liabilities (net) — 0.1%     811,764    
    TOTAL NET ASSETS — 100.0%   $ 572,539,915    

 

See accompanying notes to the financial statements.


17


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Notes to Schedule of Investments:

REIT - Real Estate Investment Trust

*  Non-income producing security.

Currency Abbreviations:

AUD - Australian Dollar

CAD - Canadian Dollar

CHF - Swiss Franc

DKK - Danish Krone

EUR - Euro

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.


18



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $553,206,894) (Note 2)   $ 571,728,151    
Dividends receivable     1,426,827    
Foreign taxes receivable     438,360    
Receivable for expenses reimbursed by Manager (Note 3)     26,877    
Total assets     573,620,215    
Liabilities:  
Foreign currency due to custodian     13,719    
Payable for Fund shares repurchased     499,875    
Payable to affiliate for (Note 3):  
Management fee     240,743    
Shareholder service fee     72,223    
Trustees and Chief Compliance Officer of GMO Trust fees     1,063    
Accrued expenses     252,677    
Total liabilities     1,080,300    
Net assets   $ 572,539,915    
Net assets consist of:  
Paid-in capital   $ 642,963,885    
Accumulated undistributed net investment income     7,804,674    
Accumulated net realized loss     (96,898,466 )  
Net unrealized appreciation     18,669,822    
    $ 572,539,915    
Net assets attributable to:  
Class III shares   $ 572,539,915    
Shares outstanding:  
Class III     42,688,623    
Net asset value per share:  
Class III   $ 13.41    

 

See accompanying notes to the financial statements.


19


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $947,642)   $ 9,686,049    
Interest     10,886    
Total investment income     9,696,935    
Expenses:  
Management fee (Note 3)     1,252,506    
Shareholder service fee – Class III (Note 3)     375,752    
Custodian and fund accounting agent fees     188,640    
Audit and tax fees     40,480    
Transfer agent fees     16,928    
Legal fees     9,384    
Trustees fees and related expenses (Note 3)     4,893    
Registration fees     1,472    
Miscellaneous     6,531    
Total expenses     1,896,586    
Fees and expenses reimbursed by Manager (Note 3)     (258,928 )  
Expense reductions (Note 2)     (176 )  
Net expenses     1,637,482    
Net investment income (loss)     8,059,453    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (51,200,643 )  
Closed futures contracts     (434,665 )  
Foreign currency, forward contracts and foreign currency related transactions     1,077,262    
Net realized gain (loss)     (50,558,046 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     222,250,561    
Open futures contracts     614,019    
Foreign currency, forward contracts and foreign currency related transactions     486,111    
Net unrealized gain (loss)     223,350,691    
Net realized and unrealized gain (loss)     172,792,645    
Net increase (decrease) in net assets resulting from operations   $ 180,852,098    

 

See accompanying notes to the financial statements.


20


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 8,059,453     $ 24,126,859    
Net realized gain (loss)     (50,558,046 )     (41,865,325 )  
Change in net unrealized appreciation (depreciation)     223,350,691       (401,368,403 )  
Net increase (decrease) in net assets from operations     180,852,098       (419,106,869 )  
Distributions to shareholders from:  
Net investment income  
Class III     (1,808,416 )     (24,318,799 )  
Net realized gains  
Class III     —       (25,255,573 )  
      (1,808,416 )     (49,574,372 )  
Net share transactions (Note 7):  
Class III     (20,527,824 )     (209,640,633 )  
Total increase (decrease) in net assets     158,515,858       (678,321,874 )  
Net assets:  
Beginning of period     414,024,057       1,092,345,931    
End of period (including accumulated undistributed net investment
income of $7,804,674 and $1,553,637, respectively)		   $ 572,539,915     $ 414,024,057    

 

See accompanying notes to the financial statements.


21



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

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

    Six Months
Ended
August 31, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 9.28     $ 18.73     $ 20.76     $ 18.31     $ 15.78     $ 13.19    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.18       0.48       0.51       0.36       0.35       0.26    
Net realized and unrealized
gain (loss)		     3.99       (8.92 )     0.20 (a)      3.28       2.77       2.61    
Total from investment
operations		     4.17       (8.44 )     0.71       3.64       3.12       2.87    
Less distributions to shareholders:  
From net investment income     (0.04 )     (0.49 )     (0.57 )     (0.40 )     (0.31 )     (0.28 )  
From net realized gains     —       (0.52 )     (2.17 )     (0.79 )     (0.28 )     —    
Total distributions     (0.04 )     (1.01 )     (2.74 )     (1.19 )     (0.59 )     (0.28 )  
Net asset value, end of
period		   $ 13.41     $ 9.28     $ 18.73     $ 20.76     $ 18.31     $ 15.78    
Total Return(b)      45.02 %**      (46.71 )%     2.28 %     20.33 %     20.04 %     21.94 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 572,540     $ 414,024     $ 1,092,346     $ 1,105,264     $ 829,583     $ 559,912    
Net expenses to average daily
net assets		     0.65 %(c)*      0.67 %(c)      0.69 %(c)      0.69 %     0.69 %     0.69 %  
Net investment income to
average daily net assets		     3.22 %*      3.09 %     2.33 %     1.83 %     2.10 %     1.91 %  
Portfolio turnover rate     25 %**      67 %     41 %     34 %     39 %     44 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.10 %*      0.11 %     0.09 %     0.08 %     0.10 %     0.16 %  

 

(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.


22



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Tax-Managed International Equities Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, 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 companies tied economically to countries other than the U.S. The Manager 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. Under normal circumstances, the Fund invests at least 80% of its assets in equity investments (which include common stocks and other stock-related securities, such as preferred stocks, convertible securities, and depository receipts). The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. The Fund may make investments in emerging countries, but these investments generally will represent 15% or less of the Fund's total assets. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the-counter derivatives, including options, futures, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury 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 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the


23


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 95.39% of the net assets of the Fund were valued using fair value prices based on models used by a third party vendor and are classified as using Level 2 inputs in the table below.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

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


24


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Common Stocks  
Australia   $ —     $ 17,607,096     $ —     $ 17,607,096    
Austria     —       713,476       —       713,476    
Belgium     —       9,900,178       —       9,900,178    
Canada     10,627,999       —       —       10,627,999    
Denmark     —       2,973,105       —       2,973,105    
Finland     —       3,274,318       —       3,274,318    
France     2,668,561       57,698,566       —       60,367,127    
Germany     —       27,903,542       —       27,903,542    
Greece     —       5,019,813       —       5,019,813    
Hong Kong     —       8,598,477       —       8,598,477    
Ireland     —       2,927,866       —       2,927,866    
Italy     —       28,330,964       —       28,330,964    
Japan     —       151,588,189       —       151,588,189    
Malta     —       0 *      —       0    
Netherlands     —       13,481,129       —       13,481,129    
New Zealand     —       2,034,647       —       2,034,647    
Norway     —       608,068       —       608,068    
Portugal     —       819,629       —       819,629    
Singapore     —       7,700,955       —       7,700,955    
Spain     —       16,078,308       —       16,078,308    
Sweden     —       16,811,139       —       16,811,139    
Switzerland     —       43,485,363       —       43,485,363    
United Kingdom     —       128,388,640       —       128,388,640    
TOTAL COMMON STOCKS     13,296,560       545,943,468       —       559,240,028    
Preferred Stocks  
Germany     —       230,215       —       230,215    
Short-Term Investments     12,257,908       —       —       12,257,908    
Total   $ 25,554,468     $ 546,173,683     $ —     $ 571,728,151    

 

*  Represents the interest in securities that have no value at August 31, 2009.


25


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, 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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized


26


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign futures in those markets or on 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 futures using f air value prices, which are based on adjustments to closing prices supplied by a third party vendor based on that vendor's proprietary models. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to


27


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity


28


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the


29


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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.

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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $46,304,941.


30


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 553,277,223     $ 70,115,345     $ (51,664,417 )   $ 18,450,928    

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.


31


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. There can be no assurance that the Fund's tax management strategies will be effective, and an investor may incur tax liabilities that exceed their economic return. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

Other principal risks of an investment in the Fund include Market Risk — Value Securities (risk that the price of the Fund's securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value), Liquidity Risk (difficulty in selling Fund investments), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investm ents in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty), Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments in companies with smaller market capitalizations), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.


32


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index). The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms


33


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

(e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictability of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.


34


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (rights and
warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on futures
contracts* 		     —       —       —       —       —       —    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on futures
contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


35


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (rights and warrants)   $ —     $ —     $ —     $ (1,008,597 )   $ —     $ (1,008,597 )  
Futures contracts     —       —       —       (434,665 )     —       (434,665 )  
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ (1,443,262 )   $ —     $ (1,443,262 )  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (rights and warrants)   $ —     $ —     $ —     $ 34,593     $ —     $ 34,593    
Futures contracts     —       —       —       614,019       —       614,019    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 648,612     $ —     $ 648,612    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures   Rights/Warrants  
Average notional amount outstanding   $ 2,448,009     $ 205,675    
Highest notional amount outstanding     9,186,120       947,308    
Lowest notional amount outstanding     —       —    

 


36


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.50% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's 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.

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, 2009 was $3,881 and $2,300, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $122,445,198 and $127,650,935, respectively.

5.  Guarantees

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


37


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

maximum exposure under these arrangements is unknown, as it involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 10.11% 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.

As of August 31, 2009, 1.01% 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 each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,979,893     $ 21,461,024       3,751,313     $ 51,736,423    
Shares issued to shareholders
in reinvestment of distributions		     78,868       916,440       2,520,757       35,938,181    
Shares repurchased     (3,973,109 )     (42,905,288 )     (19,981,045 )     (297,315,237 )  
Net increase (decrease)     (1,914,348 )   $ (20,527,824 )     (13,708,975 )   $ (209,640,633 )  

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


38



GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In


39


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. 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 benefi t to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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.


40


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


41


GMO Tax-Managed International Equities Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.65 %   $ 1,000.00     $ 1,450.20     $ 4.01    
2) Hypothetical     0.65 %   $ 1,000.00     $ 1,021.93     $ 3.31    

 

*  Expenses are calculated using the Class's annualized net expense ratio for the six months ended August 31, 2009, 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 International Small Companies Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     97.4 %  
Short-Term Investments     7.6    
Preferred Stocks     0.9    
Futures Contracts     0.4    
Forward Currency Contracts     0.1    
Rights and Warrants     0.0    
Other     (6.4 )  
      100.0 %  
Country Summary   % of Equity Investments  
Japan     35.5 %  
United Kingdom     21.2    
Germany     6.8    
Sweden     4.7    
Italy     4.2    
France     3.9    
Australia     3.2    
Canada     3.1    
Ireland     2.9    
Netherlands     2.9    
Singapore     1.9    
Belgium     1.7    
Finland     1.6    
Hong Kong     1.5    
Norway     1.2    
Austria     1.1    
Switzerland     0.9    
Greece     0.6    
Portugal     0.4    
New Zealand     0.3    
Spain     0.2    
Denmark     0.2    
      100.0 %  

 


1


GMO International Small Companies Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Industry Group Summary   % of Equity Investments  
Capital Goods     16.2 %  
Materials     11.2    
Retailing     9.5    
Real Estate     7.9    
Food, Beverage & Tobacco     5.1    
Consumer Services     5.1    
Software & Services     4.4    
Diversified Financials     4.3    
Technology Hardware & Equipment     4.1    
Transportation     3.6    
Media     3.3    
Health Care Equipment & Services     3.2    
Automobiles & Components     3.1    
Energy     3.0    
Insurance     2.8    
Consumer Durables & Apparel     2.7    
Commercial & Professional Services     2.4    
Pharmaceuticals, Biotechnology & Life Sciences     2.3    
Semiconductors & Semiconductor Equipment     1.8    
Food & Staples Retailing     1.1    
Banks     0.9    
Household & Personal Products     0.8    
Utilities     0.7    
Telecommunication Services     0.5    
      100.0 %  

 


2



GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 97.4%  
        Australia — 3.1%  
    200,919     Ansell Ltd     1,638,100    
    1,458,388     Australian Infrastructure Fund     1,921,127    
    767,645     Challenger Financial Services Group Ltd     2,032,679    
    2,468,601     Commonwealth Property Office Fund     1,863,619    
    464,953     Downer Edi Ltd     3,142,146    
    10,877,038     Goodman Group     5,697,016    
    384,402     Iluka Resources Ltd *      1,283,722    
    297,221     JB Hi-Fi Ltd     4,473,620    
    95,907     Karoon Gas Australia Ltd *      866,186    
    5,732,828     Macquarie CountryWide Trust     3,051,333    
    18,340,715     Macquarie Office Trust     4,182,913    
    2,432,161     Pacific Brands Ltd *      2,295,971    
    6,344,870     PanAust Ltd *      2,191,825    
    2,449,350     PaperlinX Ltd     1,429,390    
    1,225,994     Sigma Pharmaceuticals Ltd     1,248,999    
    Total Australia     37,318,646    
        Austria — 1.1%  
    43,411     AI Airports International Ltd ADC     174,786    
    83,402     BWIN Interactive Entertainment AG *      3,273,809    
    37,495     Flughafen Wien AG     1,587,396    
    1,521,072     Immofinanz AG *      4,838,418    
    141,274     Wienerberger AG *      3,229,406    
    Total Austria     13,103,815    
        Belgium — 1.7%  
    30,618     Bekaert NV     4,073,785    
    9,192     Cofinimmo SA     1,218,863    
    117,065     Euronav SA     2,287,047    
    44,058     GIMV NV     2,266,706    
    444,347     Nyrstar *      4,598,555    
    68,787     Omega Pharma SA     2,658,725    
    80,854     Tessenderlo Chemie     2,826,512    
    Total Belgium     19,930,193    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Canada — 3.1%  
    117,775     ACE Aviation Holdings Inc Class A *      467,980    
    258,500     Advantage Oil & Gas Ltd     1,473,432    
    105,300     Biovail Corp     1,345,647    
    154,375     Daylight Resources Trust     1,135,162    
    53,300     Dorel Industries Inc Class B     1,467,424    
    198,000     Fairborne Energy Ltd *      643,873    
    269,600     Hudbay Minerals Inc *      2,078,487    
    202,500     Jean Coutu Group PJC (The) Inc     1,797,945    
    118,900     Kingsway Financial Services Inc     398,596    
    109,000     Linamar Corp     1,264,490    
    223,900     Methanex Corp     4,008,623    
    39,575     Open Text Corp *      1,393,937    
    164,500     Osisko Mining Corp *      1,075,880    
    309,200     Precision Drilling Trust     1,765,243    
    358,000     Quadra Mining Ltd *      3,675,652    
    69,871     Quebecor Inc Class B     1,575,169    
    477,400     RONA Inc *      6,122,581    
    77,700     Russel Metals Inc     1,161,863    
    140,450     Torstar Corp Class B     822,365    
    151,825     Transcontinental Inc     1,317,504    
    336,300     Trinidad Drilling Ltd     1,766,362    
    Total Canada     36,758,215    
        Denmark — 0.2%  
    33,973     D/S Norden A/S     1,196,177    
    26,190     Genmab A/S *      740,065    
    Total Denmark     1,936,242    
        Finland — 1.6%  
    212,770     Amer Sports Oyj Class A     2,264,904    
    254,391     Huhtamaki Oyj     3,075,291    
    45,400     Orion Oyj Class B     772,034    
    100,784     Outotec Oyj     2,936,346    
    87,918     Pohjola Bank Plc     1,016,110    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Finland — continued  
    507,506     Ruukki Group Oyj *      1,340,185    
    131,294     Tieto Oyj     2,403,281    
    370,437     YIT Oyj     5,310,166    
    Total Finland     19,118,317    
        France — 3.8%  
    29,901     Alten *      709,445    
    4,595     Bollore     772,411    
    55,998     Bourbon SA     2,481,314    
    13,663     Ciments Francais     1,503,756    
    29,831     Faiveley SA     2,321,601    
    22,813     Fonciere des Regions     2,390,815    
    88,684     Gemalto NV *      3,696,310    
    143,917     Groupe Steria SCA     3,957,859    
    365,033     Havas SA     1,116,805    
    44,573     IMS International Metal Service *      800,678    
    123,854     Maurel et Prom     2,308,693    
    44,813     Nexans SA     3,283,086    
    123,012     Rallye SA     4,004,273    
    297,741     Silicon-On-Insulator Technologies *      2,734,145    
    7,903     Societe BIC SA     486,382    
    53,505     Teleperformance     1,843,412    
    2,675,275     Thomson *      3,672,559    
    125,272     Valeo SA *      3,195,738    
    42,388     Wendel     2,003,479    
    65,600     Zodiac Aerospace     2,493,701    
    Total France     45,776,462    
        Germany — 5.8%  
    259,059     Aixtron AG     5,096,547    
    292,361     Arques Industries AG *      757,106    
    150,508     Aurubis AG     5,739,172    
    40,631     Bechtle AG     1,096,057    
    36,275     Centrotherm Photovoltaics AG *      1,465,919    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued  
    33,358     Fielmann AG     2,151,389    
    122,736     Freenet AG *      1,647,641    
    64,706     Hannover Rueckversicherung AG (Registered) *      2,850,650    
    442,776     Heidelberger Druckmaschinen AG *      3,879,327    
    1,391,805     Infineon Technologies AG *      7,332,150    
    171,564     Kloeckner & Co AG *      4,586,946    
    211,633     MTU Aero Engines Holding AG     8,948,549    
    200,149     Praktiker Bau-Und Heimwerkermaerkte Holding AG     2,588,655    
    91,100     Qiagen NV *      1,876,118    
    48,878     Rheinmetall AG     2,392,917    
    84,499     Software AG     6,485,247    
    174,636     Suedzucker AG     3,398,038    
    157,459     Tognum AG     2,406,915    
    14,153     Vossloh AG     1,670,492    
    252,994     Wirecard AG     2,660,603    
    Total Germany     69,030,438    
        Greece — 0.6%  
    2,086,065     Alapis Holding Industrial & Commercial SA     1,794,368    
    367,257     Intralot SA     2,322,889    
    69,460     Jumbo SA     746,785    
    158,913     Motor Oil (Hellas) Corinth Refineries SA     2,220,387    
    Total Greece     7,084,429    
        Hong Kong — 1.5%  
    300,800     Dah Sing Financial Group     1,622,014    
    2,000,000     First Pacific Co     1,278,065    
    3,069,600     HKR International Ltd *      1,207,865    
    4,715,500     Johnson Electric Holdings Ltd *      1,867,161    
    7,546,000     Pacific Basin Shipping Ltd     5,036,678    
    1,032,000     Sun Hung Kai & Co Ltd     888,542    
    908,000     Texwinca Holdings Ltd     714,536    
    657,000     VTech Holdings Ltd     5,178,773    
    Total Hong Kong     17,793,634    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Ireland — 2.9%  
    1,006,408     Allied Irish Banks Plc *      3,836,395    
    1,069,039     Bank of Ireland *      3,766,025    
    1,804,969     C&C Group Plc     6,738,311    
    294,223     DCC Plc     7,135,999    
    920,737     Fyffes Plc     647,293    
    776,891     Grafton Group Plc *      4,014,734    
    315,473     Kingspan Group Plc     2,833,390    
    86,743     Paddy Power Plc     2,396,658    
    250,250     Smurfit Kappa Group Plc     1,972,053    
    1,671,045     Total Produce Ltd     895,994    
    Total Ireland     34,236,852    
        Italy — 4.1%  
    302,578     Amplifon SPA *      1,070,377    
    218,424     Ansaldo STS SPA     4,416,495    
    465,610     Arnoldo Mondadori Editore SPA *      2,008,732    
    53,212     Autostrada Torino-Milano SPA     598,869    
    369,507     Azimut Holding SPA     4,274,521    
    342,916     Benetton Group SPA     3,270,020    
    2,105,270     Beni Stabili SPA     1,873,857    
    338,809     Cementir SPA     1,717,716    
    1,461,487     CIR-Compagnie Industriali Riunite SPA *      3,007,646    
    80,534     Danieli & Co SPA     1,699,474    
    109,061     DiaSorin SPA     3,433,245    
    118,703     ERG SPA     1,697,516    
    283,336     Indesit Company SPA *      1,947,276    
    203,250     Italcementi SPA-Di RISP     1,577,881    
    24,914     Italmobiliare SPA     1,144,892    
    32,164     Italmobiliare SPA-RSP *      969,415    
    485,692     Maire Tecnimont SPA     2,082,958    
    824,936     Milano Assicurazioni SPA     2,721,546    
    3,378,327     Pirelli & Co Real Estate SPA *      2,957,554    
    516,776     Recordati SPA     3,491,956    
    11,909,302     Seat Pagine Gialle SPA *      3,111,706    
    Total Italy     49,073,652    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — 34.9%  
    704     Access Co Ltd *      1,886,633    
    230,900     ADEKA Corp     2,319,481    
    71,900     Aderans Co Ltd     978,860    
    1,411,450     Aiful Corp     4,213,678    
    100,100     Alpen Co Ltd     1,690,339    
    401,600     Alps Electric Co Ltd     2,416,671    
    406,200     AOC Holdings Inc     3,139,774    
    116,000     Aoyama Trading Co Ltd     2,153,048    
    141,400     Autobacs Seven Co Ltd     5,296,053    
    610,200     Cedyna Financial Corp *      1,140,414    
    719,000     Central Glass Co Ltd     3,536,761    
    300,500     Century Tokyo Leasing Corp     3,454,182    
    34,200     Chiba Kogyo Bank Ltd *      294,366    
    157,200     Circle K Sunkus Co Ltd     2,554,138    
    92,900     CMK Corp     805,483    
    196,000     COMSYS Holdings Corp     2,259,523    
    399,400     CSK Holdings Corp *      1,924,889    
    203,000     Culture Convenience Club Co Ltd     1,499,839    
    734     DA Office Investment Corp (REIT)     2,321,223    
    640,600     Daiei Inc *      2,841,508    
    130,600     Daiichikosho Co Ltd     1,726,543    
    3,194,000     Daikyo Inc *      8,302,202    
    189,000     Daio Paper Corp     1,805,012    
    608,000     Daiwabo Co Ltd     2,786,616    
    275,100     DCM Japan Holdings Co Ltd     1,851,834    
    294     DeNa Co Ltd     929,803    
    126,900     Don Quijote Co Ltd     3,037,720    
    3,656     eAccess Ltd     2,686,754    
    1,514,000     Ebara Corp *      6,782,611    
    589,600     Edion Corp     5,028,613    
    128,600     Foster Electric Co Ltd     2,596,105    
    42,500     FP Corp     2,018,923    
    351,300     Fuji Oil Co Ltd     4,929,401    
    106,000     Fuji Soft Inc     2,003,385    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    485,000     Fujikura Ltd     2,551,253    
    72,000     Funai Electric Co Ltd     2,877,256    
    497,400     Futaba Industrial Co Ltd     2,069,977    
    44,100     Fuyo General Lease Co Ltd     983,203    
    1,187,000     Godo Steel     2,904,817    
    107,090     Goldcrest Co Ltd     3,130,560    
    56,860     Gulliver International Co Ltd     3,978,861    
    169,400     H.I.S. Co Ltd     3,596,489    
    1,288,000     Hanwa Co Ltd     5,073,001    
    2,119,500     Haseko Corp *      2,388,913    
    121,300     Hitachi Capital Corp     1,741,132    
    98,300     Hitachi Maxell Ltd     1,828,169    
    1,184,500     Hitachi Zosen Corp *      1,578,345    
    268,500     Hokuetsu Paper Mills Ltd     1,455,392    
    51,100     Horiba Ltd     1,156,508    
    622,000     Iseki & Co Ltd *      2,830,109    
    188,600     Itochu Enex Co Ltd     1,158,380    
    560,000     Iwatani International Corp     1,657,748    
    407,000     J-Oil Mills Inc     1,508,028    
    651,000     JACCS Co Ltd     1,650,179    
    254     Japan Excellent Inc     1,237,513    
    242,600     Japan Securities Finance Co Ltd     1,976,017    
    620,000     JFE Shoji Holdings Inc     2,513,418    
    1,018,000     Juki Corp     1,366,408    
    254,000     K's Holdings Corp     7,790,262    
    81,500     Kaga Electronics Co Ltd     977,625    
    784     Kakaku.com Inc     2,929,980    
    344,000     Kaken Pharmaceutical Co Ltd     3,140,644    
    463,000     Kayaba Industry Co     1,247,027    
    113,600     Keihin Corp     1,885,203    
    7,159     Kenedix Inc *      3,454,023    
    959     Kenedix Realty Investment Corp (REIT)     3,588,792    
    12,393     KK daVinci Holdings *      1,898,937    
    48,000     Kobayashi Pharmaceutical Co Ltd     2,155,719    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    140,300     Kohnan Shoji Co Ltd     1,589,667    
    121,000     Koito Manufacturing Co Ltd     1,604,971    
    273,500     Kojima Co Ltd     1,417,582    
    633,000     Kurabo Industries Ltd     1,393,185    
    100,200     Kyoei Steel Ltd     2,386,227    
    235,000     Kyokuyo Co Ltd     484,659    
    131,000     Kyorin Co Ltd     2,225,302    
    279,000     Kyowa Exeo Corp     2,808,804    
    115,000     Kyudenko Corp     757,368    
    71,800     Lintec Corp     1,504,435    
    113,000     Maeda Road Construction Co Ltd     995,217    
    44,600     Mandom Corp     1,295,382    
    52,100     Mars Engineering Corp     1,679,416    
    1,862,525     Maruha Group Inc     2,820,639    
    124,700     Megachips Corp     2,805,629    
    52,000     Meitec Corp     1,032,022    
    203,600     Miraca Holdings Inc     5,870,691    
    686,000     Mitsubishi Steel Manufacturing Co Ltd     1,589,487    
    1,235,000     Mizuho Investors Securities Co Ltd *      1,459,041    
    475,000     Morinaga Milk Industry Co Ltd     2,072,788    
    238,000     Nabtesco Corp     2,645,497    
    60,000     Nagase & Co     716,201    
    569,000     Nakayama Steel Works Ltd     1,210,239    
    1,705     Net One Systems Co Ltd     2,803,837    
    910,000     Nichias Corp     3,500,054    
    161,400     Nichicon Corp     2,245,163    
    345,000     Nichirei Corp     1,332,637    
    65,000     Nifco Inc     1,157,801    
    74,300     Nihon Dempa Kogyo Co Ltd     1,685,401    
    162,300     Nihon Kohden Corp     2,657,316    
    151,000     Nihon Nohyaku Co Ltd     1,249,670    
    418,000     Nippon Chemi-Con Corp     1,616,811    
    1,315,000     Nippon Coke & Engineering Co Ltd     1,722,110    
    1,200     Nippon Commercial Investment Corp (REIT)     2,154,204    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    379,000     Nippon Corp     3,277,975    
    129,000     Nippon Densetsu Kogyo Co Ltd     1,277,487    
    431,000     Nippon Flour Mills Co Ltd     2,212,009    
    215,000     Nippon Kayaku Co Ltd     1,882,605    
    2,344,000     Nippon Light Metal *      2,696,669    
    685,000     Nippon Metal Industry Co Ltd     1,521,802    
    1,025     Nippon Residential Investment Corp (REIT)     2,550,259    
    524,000     Nippon Sharyo Ltd     3,462,258    
    318,000     Nippon Shokubai Co Ltd     3,006,810    
    508,000     Nippon Soda Co Ltd     2,408,608    
    414,000     Nippon Synthetic Chemical Industry Co Ltd     2,765,295    
    261,600     Nippon System Development Co Ltd     2,774,492    
    1,393,500     Nippon Yakin Koguo Co Ltd     8,134,932    
    240,000     Nipro Corp     5,121,737    
    108,600     Nishimatsuya Chain Co Ltd     1,086,442    
    456,000     Nissan Shatai Co Ltd     3,742,795    
    552,000     Nisshin Oillio Group Ltd (The)     2,934,761    
    212,200     Nissin Kogyo Co Ltd     2,760,867    
    431,000     NOF Corp     2,452,458    
    70,800     Okinawa Electric Power Co     4,217,198    
    1,322,500     Orient Corp *      1,447,739    
    245     ORIX JREIT Inc (REIT)     1,273,843    
    78,300     Osaka Steel Co Ltd     1,400,467    
    935,000     Pacific Metals Co Ltd     7,830,295    
    361,200     Park24 Co Ltd     3,644,627    
    63,700     Pigeon Corp     2,635,824    
    104,100     PLENUS Co Ltd     1,538,413    
    86,120     Point Inc     5,264,484    
    159     Premier Investment Corp (REIT)     667,945    
    268,400     QP Corp     2,882,493    
    19,200     Rinnai Corp     951,942    
    577,000     Round One Corp     5,227,457    
    492,000     Ryobi Ltd     1,457,872    
    59,800     Ryosan Co     1,518,713    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    186,800     Saizeriya Co Ltd     3,095,092    
    559,000     Sanken Electric Co Ltd     2,023,768    
    553,000     Sankyo-Tateyama Holdings Inc *      600,276    
    41,300     Sawai Pharmaceuticals Co Ltd     2,380,449    
    474,000     Seino Holdings Co Ltd     4,216,658    
    513,000     Shinwa Kaiun Kaisha Ltd     1,414,393    
    46,700     SHO-BOND Holdings Co Ltd     903,776    
    482,800     Showa Corp     3,089,429    
    1,188,000     Sumitomo Light Metal Industries Ltd *      1,264,906    
    38,530     Sumitomo Real Estate Sales Co Ltd     1,658,247    
    961     T-Gaia Corp     1,692,863    
    600,000     Taihei Kogyo Co Ltd     1,837,586    
    303,000     Taiyo Yuden Co Ltd     3,608,719    
    158,700     Takata Corp     3,018,487    
    671,400     Takefuji Corp     3,430,169    
    497,000     TOA Corp     608,977    
    1,189,000     Toho Zinc Co Ltd     5,814,187    
    133,800     Tokai Rika Co Ltd     2,393,865    
    424,000     Tokyo Rope Manufacturing Co Ltd     1,436,612    
    117,800     Tokyo Steel Manufacturing Co     1,550,861    
    355     Top REIT Inc     1,476,259    
    939,000     Topy Industries Ltd     2,352,329    
    215,000     Toshiba Plant Systems & Services Corp     2,917,477    
    45,300     Towa Pharmaceutical Co Ltd     2,280,986    
    1,210,000     Toyo Tire & Rubber Co Ltd *      2,874,063    
    144,000     TS Tech Co Ltd     2,605,462    
    155,000     Uchida Yoko Co Ltd     520,120    
    108,400     Ulvac Inc     3,118,083    
    710,000     Uniden Corp *      1,966,020    
    46,100     Union Tool Co     1,413,805    
    134,000     Unipres Corp     1,797,167    
    325     United Urban Investment Corp (REIT)     1,808,423    
    1,645     Wacom Co Ltd     3,305,217    
    48,700     WATAMI Co Ltd     1,020,098    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    1,094     Works Applications Co Ltd     713,849    
    357,000     Zeon Corp     1,753,652    
    Total Japan     415,973,629    
        Netherlands — 2.9%  
    294,333     Aalberts Industries NV     3,619,304    
    174,073     Crucell NV *      3,806,411    
    216,150     CSM     4,704,516    
    469,294     Koninklijke BAM Groep NV     4,936,733    
    26,963     Koninklijke Vopak NV *      1,734,378    
    102,721     Mediq NV     1,629,440    
    450,596     OCE NV     2,647,984    
    32,004     Smit International NV     2,327,218    
    204,883     USG People NV *      3,321,914    
    56,993     Vastned NV     3,465,334    
    22,048     Wereldhave NV     2,165,347    
    Total Netherlands     34,358,579    
        New Zealand — 0.3%  
    1,451,590     Fisher & Paykel Healthcare Corp Ltd     3,233,315    
        Norway — 1.2%  
    1,142,000     DNO International ASA *      1,203,593    
    5,695,000     Marine Harvest *      4,052,700    
    329,000     Petroleum Geo-Services ASA *      2,619,664    
    249,000     Storebrand ASA *      1,357,894    
    225,376     Tandberg ASA     4,686,530    
    Total Norway     13,920,381    
        Portugal — 0.3%  
    156,125     Redes Energeticas Nacionais SA     635,540    
    2,907,243     Sonae     3,586,266    
    Total Portugal     4,221,806    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Singapore — 1.8%  
    5,620,000     CapitaCommercial Trust     3,473,436    
    3,288,000     Indofood Agri Resources Ltd *      3,791,161    
    688,000     Keppel Land Ltd     1,222,231    
    653,000     Kim Eng Holdings Ltd     946,775    
    1,115,000     KS Energy Services Ltd     967,720    
    1,637,000     MobileOne Ltd     1,943,465    
    514,000     Singapore Airport Terminal Services Ltd     881,944    
    1,524,000     SMRT Corp Ltd     1,798,148    
    3,112,000     Suntec Real Estate Investment Trust     2,158,207    
    612,000     Venture Corp Ltd     3,657,339    
    680,000     Wheelock Properties Ltd     853,647    
    Total Singapore     21,694,073    
        Spain — 0.2%  
    39,633     Corp Financiera Alba SA     2,151,372    
        Sweden — 4.6%  
    116,691     Axfood AB     3,138,147    
    118,200     Betsson AB *      1,427,013    
    1,616,534     Boliden AB     16,650,644    
    37,947     Cardo AB     999,199    
    63,100     D Carnegie AB * (a)      4,432    
    754,262     Eniro AB *      3,815,207    
    815,018     Fabege AB     4,494,063    
    199,620     Hexagon AB Class B     2,068,116    
    193,223     Kinnevik Investment AB Class B     2,629,758    
    820,225     Kungsleden AB     5,725,108    
    385,439     NCC Class B     4,750,804    
    28,367     Oriflame Cosmetics SA SDR     1,383,554    
    390,158     Peab AB     2,292,351    
    56,900     Ratos AB Series B     1,340,947    
    856,956     Trelleborg AB Class B *      4,622,963    
    81,342     Vostok Gas Ltd * (a)      2,514    
    Total Sweden     55,344,820    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Switzerland — 0.8%  
    30,349     Actelion Ltd (Registered) *      1,753,571    
    326,382     Clariant AG (Registered) *      2,959,977    
    7,770     Galenica AG     2,495,224    
    72,096     Petroplus Holdings AG *      1,775,399    
    4,989     Valiant Holding AG (Registered)     950,984    
    1,790     Verwaltungs- und Privat-Bank AG     194,035    
    Total Switzerland     10,129,190    
        United Kingdom — 20.9%  
    1,179,203     Amlin Plc     7,047,803    
    262,653     ARM Holdings Plc     555,124    
    195,565     Arriva Plc     1,500,284    
    124,668     Autonomy Corp Plc *      2,629,316    
    1,661,558     BBA Aviation Plc     4,147,077    
    1,084,867     Brit Insurance Holdings Plc     3,822,286    
    202,026     Britvic Plc     1,135,954    
    265,948     Cape Plc     815,947    
    267,451     Carillion Plc     1,280,996    
    3,362,255     Central African Mining & Exp *      965,294    
    192,700     Charter International Plc     1,925,997    
    170,759     Close Brothers Group Plc     2,115,431    
    509,439     Cookson Group Plc     3,250,696    
    868,669     Daily Mail and General Trust Plc     5,477,184    
    668,234     Dairy Crest Group Plc     3,323,197    
    4,534,254     Debenhams Plc     5,837,823    
    2,372,365     Dimension Data Holdings Plc     2,285,350    
    449,134     Drax Group Plc     3,490,213    
    13,303,485     DSG International Plc *      5,986,302    
    245,841     EasyJet Airline Co *      1,272,763    
    831,313     Electrocomponents Plc     2,257,631    
    1,989,806     Enterprise Inns Plc     5,342,459    
    728,683     F&C Asset Management Plc     896,729    
    749,024     Game Group Plc     1,991,376    
    1,490,419     GKN Plc *      2,628,795    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    865,654     GKN Plc (Deferred) *      —    
    159,375     Go-Ahead Group Plc     3,502,433    
    687,919     Greene King Plc     5,336,806    
    571,769     Halfords Group Plc     3,130,998    
    834,161     Hiscox Ltd     4,578,599    
    1,571,962     HMV Group Plc     2,995,034    
    15,280,757     Inchcape Plc *      6,855,463    
    278,421     Inmarsat Plc     2,349,506    
    528,378     Intermediate Capital Group Plc     2,562,828    
    174,595     Intertek Group Plc     3,420,972    
    423,664     Jardine Lloyd Thompson Group Plc     3,318,701    
    515,932     JD Wetherspoon Plc     3,958,284    
    2,933,885     Johnston Press Plc     1,805,224    
    2,349,413     Kesa Electricals Plc     5,346,153    
    108,357     Ladbrokes Plc     341,882    
    908,739     Lancashire Holdings Ltd     6,845,335    
    2,287,632     Logica Plc     4,265,508    
    324,534     Luminar Group Holdings Plc     730,640    
    1,506,546     Marston's Plc     2,616,904    
    198,533     McBride Plc     467,479    
    1,299,075     Melrose Plc     3,388,851    
    695,598     Micro Focus International Plc     4,268,280    
    797,021     Misys Plc     2,395,815    
    611,582     Mitchells & Butler Plc *      2,818,200    
    432,670     National Express Group Plc     2,791,601    
    2,358,353     Northern Foods Plc     2,448,417    
    254,270     Petrofac Ltd     3,618,899    
    7,640,122     Premier Foods Plc *      5,450,801    
    141,230     Premier Oil Plc *      2,951,498    
    92,959     Provident Financial Plc     1,332,359    
    2,782,063     Punch Taverns Plc *      5,915,137    
    1,519,284     Regus Plc     2,542,185    
    3,412,311     Rentokil Initial Plc     6,054,006    
    286,611     Rightmove Plc     2,485,502    

 

See accompanying notes to the financial statements.


16


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    551,438     Savills Plc     3,230,973    
    236,096     Segro Plc     1,372,294    
    1,898,025     SIG Plc     4,311,926    
    469,085     Signet Jewelers Ltd     11,096,046    
    365,697     Smith News Plc     713,148    
    555,198     SSL International Plc     5,026,615    
    371,388     Tate & Lyle Plc     2,425,893    
    636,816     Tomkins Plc     1,836,450    
    745,485     Travis Perkins Plc     9,726,669    
    2,554,923     Trinity Mirror Plc     5,696,622    
    510,800     Tullett Prebon Plc     3,334,043    
    261,477     WH Smith Plc     1,869,206    
    2,749,753     William Hill Plc     8,248,053    
    7,203,639     Woolworths Group Plc * (a) (b)      —    
    7,032,925     Yell Group Plc *      5,231,265    
    Total United Kingdom     248,991,530    
    TOTAL COMMON STOCKS (COST $1,083,218,107)     1,161,179,590    
        PREFERRED STOCKS — 0.9%  
        Germany — 0.9%  
    30,281     Biotest AG 0.87%     1,914,983    
    34,501     Draegerwerk AG & Co 1.87%     975,564    
    113,916     Hugo Boss AG 6.40%     3,659,473    
    457,180     ProSiebenSat.1 Media AG 0.32%     4,230,412    
    Total Germany     10,780,432    
    TOTAL PREFERRED STOCKS (COST $9,268,294)     10,780,432    
        RIGHTS AND WARRANTS — 0.0%  
        Greece — 0.0%  
    2,086,065     Alapis Holding Industrial and Commercial Rights, Expires 12/31/49 *      418,682    

 

See accompanying notes to the financial statements.


17


GMO International Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value		   Description   Value ($)  
        Singapore — 0.0%  
    61,000     Tat Hong Holdings Ltd Warrants, Expires 08/02/13 *      4,445    
    TOTAL RIGHTS AND WARRANTS (COST $501,815)     423,127    
        SHORT-TERM INVESTMENTS — 7.6%  
USD     5,000,000     Allied Irish Bank Time Deposit, 0.03%, due 09/01/09     5,000,000    
USD     5,000,000     Banco Santander Time Deposit, 0.03%, due 09/01/09     5,000,000    
USD     5,000,000     Bank of America Time Deposit, 0.03%, due 09/01/09     5,000,000    
USD     4,757,871     Bank of Ireland Time Deposit, 0.03%, due 09/01/09     4,757,871    
EUR     168,736     Bank of Ireland Time Deposit, 0.06%, due 09/01/09     241,900    
USD     93,000     Bank of Montreal Time Deposit, 0.03%, due 09/01/09     93,000    
USD     35,536,101     Brown Brothers Harriman Time Deposit, 0.03%, due 09/01/09     35,536,101    
CAD     11,031     Brown Brothers Harriman Deposit, 0.04%, due 09/01/09     10,076    
CHF     11,462     Brown Brothers Harriman Time Deposit, 0.02%, due 09/01/09     10,825    
DKK     52,350     Brown Brothers Harriman Time Deposit, 0.30%, due 09/01/09     10,083    
HKD     77,511     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,001    
JPY     974,120     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,469    
NOK     60,807     Brown Brothers Harriman Time Deposit, 0.35%, due 09/01/09     10,105    
NZD     15,343     Brown Brothers Harriman Time Deposit, 1.50%, due 09/01/09     10,529    
SEK     72,128     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,133    
USD     5,000,000     Citibank Time Deposit, 0.03%, due 09/01/09     5,000,000    
USD     5,000,000     Danske Bank Time Deposit, 0.03%, due 09/01/09     5,000,000    
AUD     88,345     Deutsche Bank Time Deposit, 2.17%, due 09/01/09     74,669    
USD     5,000,000     DNB Nor Bank Time Deposit, 0.03%, due 09/01/09     5,000,000    
USD     4,884,913     JPMorgan Chase Time Deposit, 0.03%, due 09/01/09     4,884,913    
SGD     165,846     JPMorgan Chase Time Deposit, 0.01%, due 09/01/09     115,095    
USD     5,000,000     Rabobank Time Deposit, 0.03%, due 09/01/09     5,000,000    
USD     5,000,000     Royal Bank of Canada Time Deposit, 0.03%, due 09/01/09     5,000,000    
USD     5,000,000     Societe Generale Time Deposit, 0.03%, due 09/01/09     5,000,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $90,785,770)     90,785,770    
          TOTAL INVESTMENTS — 105.9%
(Cost $1,183,773,986)		     1,263,168,919    
          Other Assets and Liabilities (net) — (5.9%)     (70,591,864 )  
    TOTAL NET ASSETS — 100.0%   $ 1,192,577,055    

 

See accompanying notes to the financial statements.


18


GMO International Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys †  
10/23/09   CHF     14,745,647     $ 13,931,965     $ 241,611    
10/23/09   CHF     14,745,647       13,931,965       207,641    
10/23/09   CHF     15,192,485       14,354,145       217,919    
10/23/09   HKD     24,304,235       3,137,129       (388 )  
10/23/09   JPY     159,941,420       1,719,491       19,397    
10/23/09   NZD     2,101,774       1,437,629       32,358    
10/23/09   SEK     111,562,544       15,675,673       323,861    
10/23/09   SEK     43,580,568       6,123,514       33,584    
10/23/09   SEK     111,562,544       15,675,673       334,395    
    $ 85,987,184     $ 1,410,378    
Sales #  
10/23/09   CAD     11,885,079     $ 10,857,374     $ (125,005 )  
10/23/09   EUR     9,514,261       13,639,950       (201,799 )  
10/23/09   EUR     12,544,507       17,984,209       (121,082 )  
10/23/09   EUR     9,514,261       13,639,951       (216,679 )  
10/23/09   HKD     24,333,186       3,140,866       16    
10/23/09   JPY     159,941,420       1,719,491       (28,948 )  
10/23/09   NOK     15,289,249       2,536,944       (59,707 )  
10/23/09   SGD     8,443,903       5,857,102       (38,797 )  
10/23/09   SGD     7,765,439       5,386,487       (15,636 )  
    $ 74,762,374     $ (807,637 )  

 

†  Fund buys foreign currency; sells USD.

#  Fund sells foreign currency; buys USD.

See accompanying notes to the financial statements.


19


GMO International Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  222     CAC 40   September 2009   $ 11,661,282     $ 789,888    
  13     DAX   September 2009     2,552,165       376,552    
  207     FTSE 100   September 2009     16,455,434       2,274,215    
  112     FTSE/MIB   September 2009     18,076,433       2,385,970    
  35     TOPIX   September 2009     3,611,812       168,586    
    $ 52,357,126     $ 5,995,211    
Sales      
  10     IBEX 35   September 2009   $ 1,631,869     $ (115,568 )  
  98     OMXS30   September 2009     1,249,651       (58,114 )  
  244     S&P Toronto 60   September 2009     29,054,889       (989,957 )  
  43     SPI 200   September 2009     4,058,142       (555,007 )  
                $ 35,994,551     $ (1,718,646 )  

 

As of August 31, 2009, 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

SDR - Swedish Depository Receipt

*  Non-income producing security.

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

(b)  Bankrupt issuer.

Currency Abbreviations:

AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
DKK - Danish Krone
EUR - Euro
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.


20



GMO International Small Companies Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $1,183,773,986) (Note 2)   $ 1,263,168,919    
Cash     183,111    
Receivable for investments sold     3,855,473    
Receivable for Fund shares sold     370,553    
Dividends receivable     999,863    
Foreign taxes receivable     171,040    
Unrealized appreciation on open forward currency contracts (Note 2)     1,410,782    
Receivable for foreign currency sold     406,853    
Receivable for collateral on open futures contracts (Note 2)     8,755,321    
Receivable for variation margin on open futures contracts (Note 2)     7,230    
Receivable for expenses reimbursed by Manager (Note 3)     47,616    
Miscellaneous receivable     37,539    
Total assets     1,279,414,300    
Liabilities:  
Foreign currency due to custodian     68,881    
Payable for investments purchased     68,398,010    
Payable for Fund shares repurchased     16,653,662    
Payable to affiliate for (Note 3):  
Management fee     526,610    
Shareholder service fee     131,652    
Trustees and Chief Compliance Officer of GMO Trust fees     955    
Unrealized depreciation on open forward currency contracts (Note 2)     808,041    
Miscellaneous payable     37,002    
Accrued expenses     212,432    
Total liabilities     86,837,245    
Net assets   $ 1,192,577,055    
Net assets consist of:  
Paid-in capital   $ 1,236,245,701    
Accumulated undistributed net investment income     7,523,915    
Accumulated net realized loss     (135,420,716 )  
Net unrealized appreciation     84,228,155    
    $ 1,192,577,055    
Net assets attributable to:  
Class III shares   $ 1,192,577,055    
Shares outstanding:  
Class III     173,363,392    
Net asset value per share:  
Class III   $ 6.88    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $944,398)   $ 9,547,275    
Interest     9,734    
Total investment income     9,557,009    
Expenses:  
Management fee (Note 3)     1,977,055    
Shareholder service fee – Class III (Note 3)     494,264    
Custodian and fund accounting agent fees     221,918    
Audit and tax fees     39,928    
Transfer agent fees     13,800    
Legal fees     10,304    
Trustees fees and related expenses (Note 3)     5,222    
Registration fees     1,656    
Miscellaneous     7,082    
Total expenses     2,771,229    
Fees and expenses reimbursed by Manager (Note 3)     (290,550 )  
Expense reductions (Note 2)     (550 )  
Net expenses     2,480,129    
Net investment income (loss)     7,076,880    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (66,240,610 )  
Closed futures contracts     (2,527,346 )  
Foreign currency, forward contracts and foreign currency related transactions     1,050,658    
Net realized gain (loss)     (67,717,298 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     377,192,386    
Open futures contracts     6,375,727    
Foreign currency, forward contracts and foreign currency related transactions     1,458,581    
Net unrealized gain (loss)     385,026,694    
Net realized and unrealized gain (loss)     317,309,396    
Net increase (decrease) in net assets resulting from operations   $ 324,386,276    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 7,076,880     $ 15,943,005    
Net realized gain (loss)     (67,717,298 )     (57,563,603 )  
Change in net unrealized appreciation (depreciation)     385,026,694       (311,531,978 )  
Net increase (decrease) in net assets from operations     324,386,276       (353,152,576 )  
Distributions to shareholders from:  
Net investment income  
Class III     (7,981,098 )     (11,541,650 )  
Net realized gains  
Class III     —       (26,984,042 )  
      (7,981,098 )     (38,525,692 )  
Net share transactions (Note 7):  
Class III     486,587,389       97,920,776    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     2,768,521       1,037,841    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     489,355,910       98,958,617    
Total increase (decrease) in net assets     805,761,088       (292,719,651 )  
Net assets:  
Beginning of period     386,815,967       679,535,618    
End of period (including accumulated undistributed net investment
income of $7,523,915 and $8,428,133, respectively)		   $ 1,192,577,055     $ 386,815,967    

 

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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 4.20     $ 9.29     $ 12.22     $ 14.93     $ 17.84     $ 17.09    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.06       0.20       0.24       0.25       0.34       0.30    
Net realized and unrealized
gain (loss)		     2.68       (4.78 )     (0.34 )     2.68       3.44       3.56    
Total from investment
operations		     2.74       (4.58 )     (0.10 )     2.93       3.78       3.86    
Less distributions to shareholders:  
From net investment income     (0.06 )     (0.13 )     (0.51 )     (0.33 )     (0.44 )     (0.54 )  
From net realized gains     —       (0.38 )     (2.32 )     (5.31 )     (6.25 )     (2.57 )  
Total distributions     (0.06 )     (0.51 )     (2.83 )     (5.64 )     (6.69 )     (3.11 )  
Net asset value, end of period   $ 6.88     $ 4.20     $ 9.29     $ 12.22     $ 14.93     $ 17.84    
Total Return(a)      65.48 %**      (51.47 )%     (2.04 )%     23.35 %     25.77 %     24.45 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,192,577     $ 386,816     $ 679,536     $ 856,471     $ 986,602     $ 1,517,223    
Net expenses to average daily
net assets		     0.75 %(c)*      0.75 %(b)      0.76 %(b)      0.75 %     0.75 %     0.75 %  
Net investment income to
average daily net assets		     2.15 %*      2.89 %     1.98 %     1.79 %     2.01 %     1.75 %  
Portfolio turnover rate     23 %**      64 %     72 %     48 %     49 %     53 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.09 %*      0.12 %     0.13 %     0.09 %     0.11 %     0.11 %  
Purchase premiums and
redemption fees consisted of
the following per share
amounts:† 		   $ 0.02     $ 0.01     $ 0.04     $ 0.03     $ 0.07     $ 0.08    

 

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

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

(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.


24



GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO International Small Companies Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 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 the smallest excluded developed country companies ("small companies"). Under normal circumstances, the Fund invests at least 80% of its assets in securities of small companies. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes tempo rary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, futures, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported


25


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sal e, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 95.19% of the net assets of the Fund were valued using fair value prices based on models used by a third party vendor and are classified as u sing Level 2 inputs in the table below.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund considered certain bankrupt securities to be worthless. With respect to certain securities for which no current market or bid prices were available, the Fund valued those securities at the most recent available market or bid price.


26


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Common Stocks  
Australia   $ —     $ 37,318,646     $ —     $ 37,318,646    
Austria     —       13,103,815       —       13,103,815    
Belgium     —       19,930,193       —       19,930,193    
Canada     36,758,215       —       —       36,758,215    
Denmark     —       1,936,242       —       1,936,242    
Finland     —       19,118,317       —       19,118,317    
France     —       45,776,462       —       45,776,462    
Germany     —       69,030,438       —       69,030,438    
Greece     —       7,084,429       —       7,084,429    
Hong Kong     —       17,793,634       —       17,793,634    
Ireland     —       34,236,852       —       34,236,852    
Italy     —       49,073,652       —       49,073,652    
Japan     —       415,973,629       —       415,973,629    
Netherlands     —       34,358,579       —       34,358,579    
New Zealand     —       3,233,315       —       3,233,315    
Norway     —       13,920,381       —       13,920,381    
Portugal     —       4,221,806       —       4,221,806    
Singapore     —       21,694,073       —       21,694,073    
Spain     —       2,151,372       —       2,151,372    
Sweden     —       55,337,874       6,946       55,344,820    
Switzerland     —       10,129,190       —       10,129,190    
United Kingdom     —       248,991,530       0 *      248,991,530    
TOTAL COMMON STOCKS     36,758,215       1,124,414,429       6,946       1,161,179,590    
Preferred Stocks  
Germany     —       10,780,432       —       10,780,432    
TOTAL PREFERRED STOCKS     —       10,780,432       —       10,780,432    

 


27


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

ASSET VALUATION INPUTS — continued

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Rights and Warrants  
Greece   $ —     $ 418,682     $ —     $ 418,682    
Singapore     —       4,445       —       4,445    
TOTAL RIGHTS AND
WARRANTS		     —       423,127       —       423,127    
Short-Term Investments     90,785,770       —       —       90,785,770    
Total Investments     127,543,985       1,135,617,988       6,946       1,263,168,919    
Derivatives  
Forward Currency Contracts     —       1,410,782       —       1,410,782    
Futures Contracts     —       5,995,211       —       5,995,211    
Total   $ 127,543,985     $ 1,143,023,981     $ 6,946     $ 1,270,574,912    

 

*  Represents the interest in securities that have no value at August 31, 2009.

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Forward Currency Contracts   $ —     $ (808,041 )   $ —     $ (808,041 )  
Futures Contracts     (989,957 )     (728,689 )     —       (1,718,646 )  
Total   $ (989,957 )   $ (1,536,730 )   $ —     $ (2,526,687 )  

 

The aggregate net value of the Fund's direct investments in securities using Level 3 inputs was less than 0.01% of total net assets.


28


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Common Stocks  
Sweden   $ 5,140     $ —     $ —     $ —     $ 1,806     $ —     $ 6,946    
United Kingdom     125,815       —       —       —       (125,815 )     —       —    
Total   $ 130,955     $ —     $ —     $ —     $ (124,009 )   $ —     $ 6,946    

 

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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


29


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign futures on those exchanges do not reflect events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign futures using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor based on that vendor's proprietary models. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying


30


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the option. In the event that the Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations.


31


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exposure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. The Fund had no swap agreements outstanding at the end of the period.


32


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and warrants held by the Fund 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 carryforwards 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 certain 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.


33


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $48,125,769.

As of February 28, 2009, 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:

2/28/2017   $ (16,328,991 )  
Total   $ (16,328,991 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 1,191,406,928     $ 142,638,753     $ (70,876,762 )   $ 71,761,991    

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.


34


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2009, the premium on cash purchases and fee on cash redemptions of Fund shares were each 0.50% of the amount invested or redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund wil l not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.


35


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Smaller Company Risk — The securities of small companies typically are less widely held, trade less frequently and in lesser quantities, and have market prices that may fluctuate more than those of securities of larger capitalization companies.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. These risks are particularly pronounced for the Fund because it makes equity investments in small companies and may make investments in companies in emerging countries.

Other principal risks of an investment in the Fund include Market Risk — Value Securities (risk that the price of the Fund's securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations b y purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected).

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments


36


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index). The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the


37


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.


38


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Assets:  
Investments, at value (rights and
warrants)		   $ —     $ —     $ —     $ 423,127     $ —     $ 423,127    
Unrealized appreciation on
futures contracts* 		     —       —       —       5,995,211       —       5,995,211    
Unrealized appreciation on forward
currency contracts		     —       1,410,782       —       —       —       1,410,782    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ 1,410,782     $ —     $ 6,418,338     $ —     $ 7,829,120    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       (1,718,646 )     —       (1,718,646 )  
Unrealized depreciation on forward
currency contracts		     —       (808,041 )     —       —       —       (808,041 )  
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ (808,041 )   $ —     $ (1,718,646 )   $ —     $ (2,526,687 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


39


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Net Realized Gain (Loss) on:  
Investments (rights and warrants)   $ —     $ —     $ —     $ (3,044,076 )   $ —     $ (3,044,076 )  
Futures contracts     —       —       —       (2,527,346 )     —       (2,527,346 )  
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       838,619       —       —       —       838,619    
Total   $ —     $ 838,619     $ —     $ (5,571,422 )   $ —     $ (4,732,803 )  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (rights and warrants)   $ —     $ —     $ —     $ (79,871 )   $ —     $ (79,871 )  
Futures contracts     —       —       —       6,375,727       —       6,375,727    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       1,479,258       —       —       —       1,479,258    
Total   $ —     $ 1,479,258     $ —     $ 6,295,856     $ —     $ 7,775,114    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Futures   Rights/Warrants  
Average notional amount outstanding   $ 151,407,977     $ 56,881,586     $ 691,444    
Highest notional amount outstanding     181,633,076       88,351,677       1,712,751    
Lowest notional amount outstanding     118,931,651       37,080,664       1,183    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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


40


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.60% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.60% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.60% of the Fund's average daily net assets.

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, 2009 was $4,118 and $2,300, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $648,613,620 and $146,929,799, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


41


GMO International Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 26.51% 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.

As of August 31, 2009, 0.97% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 52.50% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     86,207,437     $ 516,563,603       27,018,472     $ 144,232,120    
Shares issued to shareholders
in reinvestment of distributions		     1,200,073       7,056,428       5,410,297       37,797,241    
Shares repurchased     (6,096,093 )     (37,032,642 )     (13,514,910 )     (84,108,585 )  
Purchase premiums     —       2,591,525       —       671,626    
Redemption fees     —       176,996       —       366,215    
Net increase (decrease)     81,311,417     $ 489,355,910       18,913,859     $ 98,958,617    

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


42



GMO International Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered information provided by the Manager addressing the Fund's performance, including a performance attribution analysis. 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In


43


GMO International Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. 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 benefi t to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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.


44


GMO International Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


45


GMO International Small Companies Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009, through August 31, 2009.

Actual Expenses

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

Hypothetical Example for Comparison Purposes

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

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

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.75 %   $ 1,000.00     $ 1,654.80     $ 5.02    
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, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


46



GMO Foreign Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.7 %  
Short-Term Investments     2.3    
Preferred Stocks     0.5    
Rights and Warrants     0.0    
Other     0.5    
      100.0 %  
Country Summary   % of Equity Investments  
Japan     21.9 %  
United Kingdom     21.9    
France     11.8    
Italy     9.0    
Germany     7.3    
Finland     3.7    
Hong Kong     3.3    
Switzerland     3.2    
Australia     2.8    
Netherlands     2.8    
Spain     2.8    
Sweden     2.4    
Norway     1.6    
South Korea     1.1    
Greece     0.9    
Belgium     0.8    
Brazil     0.8    
Singapore     0.6    
Taiwan     0.5    
Austria     0.3    
India     0.1    
Ireland     0.1    
Mexico     0.1    
Philippines     0.1    
Turkey     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, 2009 (Unaudited)

Industry Group Summary   % of Equity Investments  
Banks     12.5 %  
Energy     10.1    
Capital Goods     8.0    
Telecommunication Services     7.1    
Pharmaceuticals, Biotechnology & Life Sciences     6.7    
Food, Beverage & Tobacco     6.0    
Automobiles & Components     6.0    
Materials     5.9    
Utilities     5.6    
Technology Hardware & Equipment     4.7    
Insurance     4.4    
Real Estate     3.7    
Food & Staples Retailing     2.9    
Transportation     2.6    
Software & Services     2.5    
Household & Personal Products     1.8    
Diversified Financials     1.8    
Media     1.7    
Consumer Durables & Apparel     1.6    
Consumer Services     1.5    
Semiconductors & Semiconductor Equipment     0.9    
Health Care Equipment & Services     0.8    
Retailing     0.7    
Commercial & Professional Services     0.5    
      100.0 %  

 


2



GMO Foreign Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.7%  
        Australia — 2.7%  
    982,677     Aristocrat Leisure Ltd     3,840,637    
    2,792,800     Asciano Group *      3,759,622    
    646,020     Australia and New Zealand Banking Group Ltd     11,605,630    
    484,119     Brambles Ltd     3,040,731    
    422,668     Coca Cola Amatil Ltd     3,534,171    
    561,449     Consolidated Media Holdings Ltd     1,513,523    
    1,036,861     Crown Ltd     6,929,420    
    125,808     CSL Ltd     3,419,328    
    3,750,280     Fairfax Media Ltd     4,655,367    
    407,072     Goodman Group     213,210    
    1,885,036     Insurance Australia Group Ltd     5,694,163    
    479,766     Lend Lease Corp Ltd     3,826,584    
    488,270     Metcash Ltd     1,761,444    
    3,110,300     Mirvac Group     3,869,981    
    235,715     National Australia Bank Ltd     5,671,601    
    86,682     QBE Insurance Group Ltd     1,675,123    
    51,765     Rio Tinto Ltd     2,460,404    
    1,578,898     Stockland (REIT)     5,024,599    
    606,644     TABCORP Holdings Ltd     3,436,378    
    1,366,634     Tatts Group Ltd     2,863,243    
    1,866,862     Telstra Corp Ltd     5,139,778    
    282,706     Westfield Group     3,018,622    
    321,947     Westpac Banking Corp     6,612,508    
    83,700     Woolworths Ltd     1,978,856    
    Total Australia     95,544,923    
        Austria — 0.3%  
    20,223     Flughafen Wien AG     856,165    
    92,634     OMV AG     3,657,359    
    169,290     Telekom Austria AG     2,959,597    
    88,336     Wienerberger AG *      2,019,288    
    Total Austria     9,492,409    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Belgium — 0.8%  
    305,660     Belgacom SA     11,481,535    
    74,821     Delhaize Group     5,017,622    
    2,621,800     Fortis *      11,184,507    
    Total Belgium     27,683,664    
        Brazil — 0.6%  
    670,300     Hypermarcas SA *      10,662,489    
    315,800     Localiza Rent A Car SA     2,815,005    
    48,600     Lojas Renner SA     771,019    
    139,600     Sul America SA     2,759,113    
    118,000     Totvs SA     5,128,339    
    Total Brazil     22,135,965    
        Canada — 0.0%  
    220,100     KAP Resources Ltd * (a) (b)      —    
        Finland — 3.6%  
    452,613     Fortum Oyj     11,850,507    
    255,120     KCI Konecranes Oyj     7,237,842    
    216,570     Kone Oyj Class B     7,549,773    
    3,719,811     Nokia Oyj     52,218,062    
    328,625     Nokian Renkaat Oyj     7,407,164    
    440,660     Sampo Oyj Class A     10,562,464    
    932,144     Stora Enso Oyj-Class R *      6,422,509    
    506,400     Tieto Oyj     9,269,436    
    693,825     UPM-Kymmene Oyj     8,355,133    
    531,651     YIT Oyj     7,621,148    
    Total Finland     128,494,038    
        France — 11.4%  
    81,900     Accor SA     4,323,365    
    316,231     Air France-KLM *      4,838,357    
    3,077,621     Alcatel-Lucent *      11,687,844    
    287,250     ArcelorMittal     10,273,271    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        France — continued  
    533,161     AXA     12,177,677    
    360,633     BNP Paribas     29,078,493    
    294,523     Bouygues SA     14,655,392    
    224,213     Cap Gemini SA     10,878,391    
    488,150     Carrefour SA     23,053,128    
    8,119     CNP Assurances     811,108    
    99,707     Compagnie Generale des Etablissements Michelin-Class B     7,529,500    
    209,899     Danone SA     11,444,036    
    152,974     Essilor International SA     8,276,266    
    1,055,135     France Telecom SA     26,834,260    
    664,206     GDF Suez     28,074,845    
    118,585     GDF Suez VVPR Strip *      170    
    101,567     L'Oreal SA     10,026,429    
    39,645     Lafarge SA     3,378,501    
    55,146     Neopost SA     4,551,450    
    115,088     Pernod-Ricard SA     8,989,914    
    165,701     Peugeot SA *      4,809,532    
    157,878     Renault SA *      7,123,717    
    595,796     Sanofi-Aventis     40,566,394    
    132,104     Schneider Electric SA     12,207,496    
    82,259     Societe BIC SA     5,062,540    
    143,321     Societe Generale     11,584,583    
    66,129     Sodexo     3,813,883    
    93,822     Technip SA     5,818,206    
    92,369     Thales SA     4,248,340    
    1,015,947     Total SA     58,294,757    
    832,999     Vivendi Universal SA     23,778,344    
    Total France     408,190,189    
        Germany — 6.8%  
    251,467     Adidas AG     11,860,118    
    254,529     Allianz SE (Registered)     29,490,902    
    55,261     Axel Springer AG     4,849,714    
    182,129     BASF AG     9,518,250    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued  
    277,898     Bayer AG     17,089,474    
    153,891     Bayerische Motoren Werke AG     7,023,876    
    104,102     Beiersdorf AG     5,284,837    
    298,917     Commerzbank AG *      2,763,704    
    582,261     Daimler AG (Registered)     26,364,209    
    50,872     Deutsche Bank AG (Registered)     3,455,081    
    152,000     Deutsche Lufthansa AG (Registered)     2,445,685    
    120,269     Deutsche Post AG (Registered)     2,079,297    
    928,924     Deutsche Telekom AG (Registered)     12,368,552    
    669,095     E.ON AG     28,350,724    
    72,514     Fraport AG     3,670,762    
    96,500     Gerresheimer AG     2,721,704    
    201,620     Heidelberger Druckmaschinen AG *      1,766,469    
    185,121     MAN SE     14,191,744    
    37,666     Merck KGaA     3,418,935    
    58,262     Muenchener Rueckversicherungs-Gesellschaft AG (Registered)     8,705,773    
    165,649     RWE AG     15,360,047    
    297,814     SAP AG     14,541,561    
    177,893     Siemens AG (Registered)     15,454,707    
    Total Germany     242,776,125    
        Greece — 0.8%  
    4,172,613     Alapis Holding Industrial & Commercial SA     3,589,151    
    514,828     EFG Eurobank Ergasias *      7,228,793    
    320,344     National Bank of Greece SA *      10,061,772    
    351,242     OPAP SA     8,578,800    
    Total Greece     29,458,516    
        Hong Kong — 3.2%  
    912,500     Cheung Kong Holdings Ltd     10,802,632    
    1,423,000     CLP Holdings Ltd     9,521,318    
    4,074,622     Great Eagle Holdings Ltd     8,772,173    
    775,000     Hang Seng Bank Ltd     11,005,688    
    1,699,000     Hutchison Whampoa Ltd     11,931,921    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Hong Kong — continued  
    7,737,232     Link (REIT)     17,054,418    
    3,446,500     MTR Corp Ltd     11,607,801    
    8,082,887     New World Development Co Ltd     16,309,039    
    4,016,000     Wharf Holdings Ltd (The)     17,895,971    
    Total Hong Kong     114,900,961    
        India — 0.1%  
    98,500     Infosys Technologies Ltd Sponsored ADR     4,258,155    
        Ireland — 0.1%  
    95,700     Bank of Ireland *      337,133    
    200,800     C&C Group Plc     749,627    
    139,046     CRH Plc     3,557,616    
    7,119     DCC Plc     172,662    
    Total Ireland     4,817,038    
        Italy — 8.7%  
    646,160     Alleanza Assicurazioni SPA     5,317,542    
    639,993     Assicurazioni Generali SPA     15,973,561    
    141,308     Atlantia SPA     3,154,207    
    265,100     Autogrill SPA *      2,990,825    
    6,479,439     Banca Monte dei Paschi di Siena SPA     13,643,589    
    317,673     Banca Popolare di Milano Scarl     2,398,738    
    269,507     Buzzi Unicem SPA     4,619,089    
    6,607,627     Enel SPA     39,049,921    
    2,351,150     ENI SPA     55,864,645    
    654,280     Fiat SPA *      7,773,435    
    820,593     Finmeccanica SPA     13,132,494    
    194,200     Fondiaria-Sai SPA     3,742,358    
    5,615,753     Intesa San Paolo *      24,401,964    
    2,495,714     Intesa Sanpaolo-Di RISP     8,156,412    
    514,017     Italcementi SPA-Di RISP     3,990,444    
    282,526     Lottomatica SPA     6,368,988    
    1,198,917     Mediaset SPA     7,903,327    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Italy — continued  
    528,734     Mediobanca SPA     7,262,766    
    2,021,031     Pirelli & C SPA *      970,117    
    353,991     Prysmian SPA     6,631,849    
    745,496     Snam Rete Gas SPA     3,467,493    
    12,046,429     Telecom Italia SPA     19,522,359    
    13,557,018     Telecom Italia SPA-Di RISP     15,402,022    
    6,940,175     UniCredit SPA *      25,210,644    
    760,814     Unione di Banche Italiane ScpA     11,512,240    
    Total Italy     308,461,029    
        Japan — 21.3%  
    485,700     Aisin Seiki Co Ltd     12,144,641    
    323,600     Asahi Breweries Ltd     5,615,064    
    992,000     Asahi Glass Co Ltd     8,628,225    
    413,500     Astellas Pharma Inc     16,527,523    
    782,500     Bridgestone Corp     14,280,229    
    767,700     Canon Inc     29,346,612    
    239,200     Circle K Sunkus Co Ltd     3,886,449    
    328,500     Denso Corp     9,560,021    
    468,600     East Japan Railway Co     30,601,945    
    174,800     Electric Power Development Co Ltd     5,301,561    
    1,512,000     Fujitsu Ltd     10,152,362    
    985,000     Furukawa Electric Co Ltd (The)     4,352,896    
    1,679,000     Honda Motor Co Ltd     52,645,973    
    640,100     Hoya Corp     14,422,777    
    1,362,000     Itochu Corp     9,640,306    
    679     Japan Real Estate Investment Corp     5,533,687    
    4,689     Japan Tobacco Inc     13,595,660    
    516,100     JSR Corp     9,075,680    
    6,096     Jupiter Telecommunications Co Ltd     5,306,947    
    772,000     Kao Corp     19,552,702    
    888,000     Kirin Holdings Co Ltd     12,982,349    
    390,700     Konami Corp     7,684,110    
    361,900     Lawson Inc     15,670,002    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    3,628,000     Mazda Motor Corp     10,069,210    
    157,900     Miraca Holdings Inc     4,552,957    
    590,300     Mitsubishi Corp     11,932,854    
    2,727,000     Mitsubishi Electric Corp     20,263,080    
    1,786,000     Mitsubishi Materials Corp     5,445,541    
    2,628,600     Mitsubishi UFJ Financial Group Inc     16,710,712    
    1,929,900     Mitsui & Co Ltd     25,096,428    
    4,724,900     Mizuho Financial Group Inc     11,495,235    
    728,000     Nichirei Corp     2,812,058    
    196,200     Nidec Corp     14,111,862    
    30,700     Nintendo Co Ltd     8,320,411    
    598     Nippon Building Fund Inc     5,264,247    
    4,074,000     Nippon Steel Corp     15,972,348    
    433,000     Nissan Chemical Industries Ltd     6,339,746    
    3,819,000     Nissan Motor Co Ltd     26,646,495    
    188,800     Nissin Foods Holding Co Ltd     6,219,681    
    1,385,800     Nomura Holdings Inc     12,279,932    
    933     Nomura Real Estate Office Fund (REIT)     6,461,003    
    288,200     Nomura Research Institute Ltd     6,862,881    
    5,088     NTT Data Corp     17,308,414    
    18,453     NTT Docomo Inc     28,410,545    
    184,710     ORIX Corp     14,153,462    
    462     ORIX JREIT Inc (REIT)     2,402,104    
    1,961,900     Panasonic Corp     31,316,512    
    620,000     Ricoh Company Ltd     8,919,491    
    1,028,000     Sekisui Chemical Co Ltd     6,556,411    
    139,900     Shin-Etsu Chemical Co Ltd     8,261,238    
    811,600     Shionogi & Co Ltd     19,842,200    
    994,000     Sompo Japan Insurance Inc     6,764,560    
    337,300     Stanley Electric Co Ltd     6,797,996    
    42,600     Sugi Holdings Co Ltd     974,208    
    924,300     Sumitomo Corp     9,456,483    
    1,288,200     Sumitomo Electric Industries Ltd     16,620,504    
    457,100     Sumitomo Mitsui Financial Group Inc     19,639,801    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    589,000     Sumitomo Realty & Development Co Ltd     12,367,704    
    707,000     Tokai Carbon Co Ltd     3,627,116    
    298,000     Toyo Suisan Kaisha Ltd     7,584,094    
    94,300     Tsumura & Co     3,342,932    
    Total Japan     757,710,177    
        Mexico — 0.1%  
    70,200     Grupo Aeroportuario del Sureste SAB de CV ADR     2,885,220    
        Netherlands — 2.7%  
    403,100     Aegon NV *      3,038,947    
    62,370     Akzo Nobel NV     3,540,841    
    129,600     ASML Holding NV     3,563,821    
    233,144     Fugro NV     12,579,526    
    79,938     Heineken NV     3,381,412    
    936,427     ING Groep NV *      14,119,407    
    1,035,135     Koninklijke Ahold NV     12,156,294    
    703,812     Koninklijke KPN NV     10,832,711    
    194,380     Koninklijke Philips Electronics NV     4,394,248    
    191,836     Koninklijke Ten Cate NV     4,063,447    
    325,861     TNT NV     8,069,397    
    562,390     Unilever NV     15,756,912    
    Total Netherlands     95,496,963    
        New Zealand — 0.0%  
    90,009     Air New Zealand     77,080    
    282,663     Telecom Corp of New Zealand     530,835    
    Total New Zealand     607,915    
        Norway — 1.6%  
    388,500     Aker Solutions ASA     3,828,061    
    782,000     DnB NOR ASA *      8,028,598    
    1,795,000     DNO International ASA *      1,891,812    
    3,274,500     Dockwise Ltd *      3,740,229    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Norway — continued  
    543,200     Norsk Hydro ASA *      3,263,345    
    4,307,470     Prosafe ASA     21,063,385    
    3,796,454     Prosafe Production Public Ltd *      7,984,531    
    255,650     Yara International ASA     6,976,918    
    Total Norway     56,776,879    
        Philippines — 0.1%  
    31,072,000     Alliance Global Group Inc *      3,237,521    
        Singapore — 0.6%  
    4,012,000     Ascendas Real Estate Investment Trust (REIT)     4,598,521    
    3,913,030     ComfortDelgro Corp Ltd     4,211,549    
    666,130     DBS Group Holdings Ltd     5,849,728    
    549,300     Singapore Airlines Ltd     4,906,851    
    400,989     Singapore Airport Terminal Services Ltd     688,035    
    Total Singapore     20,254,684    
        South Korea — 1.1%  
    136,973     KB Financial Group Inc *      5,623,858    
    65,100     KT&G Corp     3,506,082    
    81,500     Samsung Card Co Ltd     3,323,654    
    35,990     Samsung Electronics Co Ltd     22,192,313    
    8,600     Shinsegae Co Ltd     3,562,616    
    Total South Korea     38,208,523    
        Spain — 2.7%  
    597,280     Banco Bilbao Vizcaya Argentaria SA     10,619,225    
    1,544,325     Banco Santander SA     23,775,109    
    1,573,416     Iberdrola SA     14,608,928    
    79,711     Red Electrica de Espana     3,744,762    
    279,218     Repsol YPF SA     6,940,160    
    20,478     Tecnicas Reunidas SA     1,115,787    
    1,456,755     Telefonica SA     36,834,030    
    Total Spain     97,638,001    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Sweden — 2.4%  
    298,884     Assa Abloy AB Class B     4,801,542    
    199,796     Elekta AB Class B     3,532,773    
    672,090     Ericsson LM B Shares     6,449,152    
    307,449     Getinge AB Class B     5,285,217    
    131,800     Hennes & Mauritz AB Class B     7,318,121    
    70,100     Millicom International Cellular SA SDR *      4,922,309    
    1,185,249     Nordea Bank AB     12,431,945    
    847,000     Skandinaviska Enskilda Banken AB Class A *      5,973,308    
    468,200     Skanska AB Class B     6,797,031    
    359,232     Svenska Cellulosa AB Class B     4,695,850    
    231,900     Svenska Handelsbanken AB Class A     6,094,487    
    301,300     Tele2 AB Class B     4,195,871    
    996,442     TeliaSonera AB     6,483,497    
    658,700     Volvo AB Class B     5,783,646    
    Total Sweden     84,764,749    
        Switzerland — 3.1%  
    30,669     Baloise Holding Ltd     2,783,765    
    88,721     Bank Sarasin & Cie AG Class B (Registered) *      3,287,819    
    60,358     Energiedienst Holding AG (Registered)     3,078,331    
    69,400     Lonza Group AG (Registered)     6,826,422    
    705,747     Nestle SA (Registered)     29,382,420    
    606,660     Novartis AG (Registered)     28,181,246    
    69,355     Roche Holding AG (Non Voting)     11,046,568    
    660     Sika AG     840,216    
    70,500     Sulzer AG     5,469,397    
    26,091     Swisscom AG (Registered)     9,040,878    
    100,000     UBS AG (Registered) *      1,840,943    
    34,703     Zurich Financial Services AG     7,647,933    
    Total Switzerland     109,425,938    
        Taiwan — 0.5%  
    2,204,830     Acer Inc     5,015,103    
    192,146     Chunghwa Telecom Co Ltd ADR 144A     3,285,697    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued  
    2,672,460     Quanta Computer Inc     5,530,935    
    2,874,299     Taiwan Semiconductor Manufacturing Co Ltd     5,164,622    
    Total Taiwan     18,996,357    
        Turkey — 0.1%  
    721,300     Turkiye Halk Bankasi AS     3,899,080    
        United Kingdom — 21.3%  
    153,475     AMEC Plc     1,873,240    
    260,525     Amlin Plc     1,557,093    
    449,444     Anglo American Plc *      14,610,073    
    258,433     Associated British Foods Plc     3,350,673    
    667,324     AstraZeneca Plc     30,966,967    
    1,162,075     Aviva Plc     7,610,017    
    2,990,597     BAE Systems Plc     15,109,097    
    3,177,980     Barclays Plc *      19,453,158    
    65,427     Berkeley Group Holdings Plc (Unit Shares) *      1,003,708    
    1,481,372     BG Group Plc     24,305,062    
    909,607     BHP Billiton Plc     23,693,475    
    7,742,842     BP Plc     66,360,787    
    568,928     British American Tobacco Plc     17,287,042    
    180,669     British Sky Broadcasting Group Plc     1,596,860    
    173,407     Bunzl Plc     1,651,096    
    261,078     Capita Group Plc     2,885,123    
    97,870     Carnival Plc     2,985,510    
    1,633,747     Centrica Plc     6,676,873    
    685,204     Cobham Plc     2,245,074    
    797,648     Compass Group Plc     4,212,900    
    801,626     Diageo Plc     12,405,243    
    402,597     Experian Plc     3,369,113    
    79,754     Fresnillo Plc     804,502    
    2,262,953     GlaxoSmithKline Plc     44,190,472    
    433,541     Group 4 Securicor Plc     1,567,211    
    188,531     Hiscox Ltd     1,034,822    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    873,350     Home Retail Group Plc     4,402,770    
    7,539,818     HSBC Holdings Plc     81,496,270    
    121,995     ICAP Plc     845,996    
    808,617     Imperial Tobacco Group Plc     22,680,332    
    1,037,191     International Power Plc     4,730,680    
    531,120     J Sainsbury Plc     2,801,721    
    95,527     Jardine Lloyd Thompson Group Plc     748,295    
    547,186     John Wood Group Plc     2,644,416    
    138,307     Johnson Matthey Plc     3,171,764    
    246,142     Kazakhmys Plc     3,906,306    
    761,514     Lamprell Plc     1,940,323    
    42,330     Lancashire Holdings Ltd     318,863    
    486,118     Land Securities Group Plc     4,854,210    
    3,235,291     Legal & General Group Plc     4,023,705    
    4,383,328     Lloyds Banking Group Plc     7,848,852    
    66,580     Lonmin Plc *      1,569,334    
    118,200     Man Group Plc     512,015    
    1,070,255     Marks & Spencer Group Plc     5,887,392    
    708,924     National Grid Plc     6,805,900    
    240,888     Next Plc     6,389,646    
    220,343     Pearson Plc     2,680,325    
    654,647     Prudential Plc     5,662,843    
    585,160     Punch Taverns Plc *      1,244,149    
    252,520     Reckitt Benckiser Group Plc     11,675,889    
    582,112     Reed Elsevier Plc     4,210,969    
    601,645     Rio Tinto Plc     23,306,875    
    270,005     Rolls-Royce Group Plc *      1,977,395    
    2,587,461     Royal Bank of Scotland Group Plc     2,396,328    
    1,347,527     Royal Dutch Shell Plc A Shares (London)     37,270,427    
    1,216,754     Royal Dutch Shell Plc B Shares (London)     32,828,671    
    887,058     RSA Insurance Group Plc     1,874,197    
    322,863     SABMiller Plc     7,445,660    
    403,287     Sage Group Plc     1,442,013    
    69,582     Schroders Plc     1,216,379    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    439,750     Scottish & Southern Energy Plc     7,982,595    
    255,387     Segro Plc     1,484,422    
    322,150     Serco Group Plc     2,446,039    
    173,823     Severn Trent (Ordinary Shares)     2,758,667    
    138,898     Shire Plc     2,298,457    
    584,424     Smith & Nephew Plc     4,948,191    
    95,347     Smiths Group Plc     1,236,950    
    514,351     Standard Chartered Plc     11,609,685    
    98,400     Tate & Lyle Plc     642,745    
    3,113,625     Tesco Plc     18,953,368    
    138,747     Travis Perkins Plc     1,810,293    
    636,186     Unilever Plc     17,384,381    
    22,521,001     Vodafone Group Plc     48,731,480    
    1,444,392     William Morrison Supermarkets Plc     6,476,084    
    18,140     Wolseley Plc *      424,493    
    99,728     Wolseley Plc (Deferred) *      —    
    223,678     WPP Plc     1,869,455    
    887,738     Xstrata Plc     11,777,940    
    Total United Kingdom     758,451,346    
    TOTAL COMMON STOCKS (COST $3,395,520,078)     3,444,566,365    
        PREFERRED STOCKS — 0.5%  
        Brazil — 0.1%  
    159,700     Companhia Energetica de Minas Gerais 2.79%     2,351,396    
    195,400     Tam SA *      2,493,431    
    Total Brazil     4,844,827    
        Germany — 0.3%  
    175,700     Henkel AG & Co KGaA 1.85%     6,944,004    
    47,176     Volkswagen AG 3.04%     4,427,814    
    Total Germany     11,371,818    

 

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, 2009 (Unaudited)

Shares /
Par Value		   Description   Value ($)  
        Italy — 0.1%  
    73,061     Exor SPA 5.65%     732,424    
    157,650     Fiat SPA *      1,066,110    
    Total Italy     1,798,534    
    TOTAL PREFERRED STOCKS (COST $14,725,568)     18,015,179    
        RIGHTS AND WARRANTS — 0.0%  
        Greece — 0.0%  
    4,172,613     Alapis Holding Industrial and Commercial Rights, Expires 12/31/49 *      837,460    
        Italy — 0.0%  
    497,700     UBI Banca Scpa Warrants, Expires 06/30/11 *      49,374    
        Switzerland — 0.0%  
    106,610     Bank Sarasin & Cie AG Warrants, Expires 09/15/09 *      110,748    
    TOTAL RIGHTS AND WARRANTS (COST $1,077,056)     997,582    
        SHORT-TERM INVESTMENTS — 2.3%  
EUR     9,988,989     Allied Irish Bank Time Deposit, 0.06%, due 09/01/09     14,320,215    
USD     95,299     Allied Irish Bank Time Deposit, 0.03%, due 09/01/09     95,299    
EUR     16,725,321     Bank of Ireland Time Deposit, 0.06%, due 09/01/09     23,977,421    
USD     13,500,000     BNP Paribas Time Deposit, 0.18%, due 09/01/09     13,500,000    
HKD     106     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     16    
JPY     478,571,240     HSBC Bank (Hong Kong) Time Deposit, 0.01%, due 09/01/09     5,143,162    
USD     24,000,000     Societe Generale Time Deposit, 0.13%, due 09/01/09     24,000,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $81,036,113)     81,036,113    
            TOTAL INVESTMENTS — 99.5%
(Cost $3,492,358,815)		     3,544,615,239    
            Other Assets and Liabilities (net) — 0.5%     19,346,328    
    TOTAL NET ASSETS — 100.0%   $ 3,563,961,567    

 

See accompanying notes to the financial statements.


16


GMO Foreign Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (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

REIT - Real Estate Investment Trust

SDR - Swedish Depository 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).

Currency Abbreviations:

EUR - Euro

HKD - Hong Kong Dollar

JPY - Japanese Yen

USD - United States Dollar

See accompanying notes to the financial statements.


17



GMO Foreign Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $3,492,358,815) (Note 2)   $ 3,544,615,239    
Cash     5,745,888    
Foreign currency, at value (cost $6,508,197) (Note 2)     6,456,557    
Receivable for investments sold     32,025,585    
Receivable for Fund shares sold     1,700,819    
Dividends and interest receivable     8,156,117    
Foreign taxes receivable     2,596,945    
Receivable for foreign currency sold     34,071    
Receivable for expenses reimbursed by Manager (Note 3)     106,113    
Miscellaneous receivable     2,016,132    
Total assets     3,603,453,466    
Liabilities:  
Payable for investments purchased     18,216,557    
Payable for Fund shares repurchased     16,351,195    
Payable to affiliate for (Note 3):  
Management fee     1,800,674    
Shareholder service fee     467,568    
Administration fee – Class M     881    
Trustees and Chief Compliance Officer of GMO Trust fees     8,301    
Payable for 12b-1 fee – Class M     2,120    
Miscellaneous payable     1,776,860    
Accrued expenses     867,743    
Total liabilities     39,491,899    
Net assets   $ 3,563,961,567    

 

See accompanying notes to the financial statements.


18


GMO Foreign Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 4,296,892,927    
Accumulated undistributed net investment income     55,874,385    
Accumulated net realized loss     (841,096,627 )  
Net unrealized appreciation     52,290,882    
    $ 3,563,961,567    
Net assets attributable to:  
Class II shares   $ 794,751,934    
Class III shares   $ 1,734,420,911    
Class IV shares   $ 1,029,583,674    
Class M shares   $ 5,205,048    
Shares outstanding:  
Class II     70,245,582    
Class III     152,466,690    
Class IV     88,421,968    
Class M     458,019    
Net asset value per share:  
Class II   $ 11.31    
Class III   $ 11.38    
Class IV   $ 11.64    
Class M   $ 11.36    

 

See accompanying notes to the financial statements.


19


GMO Foreign Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $8,424,154)   $ 80,154,975    
Interest     332,422    
Total investment income     80,487,397    
Expenses:  
Management fee (Note 3)     10,084,435    
Shareholder service fee – Class II (Note 3)     876,690    
Shareholder service fee – Class III (Note 3)     1,709,076    
Shareholder service fee – Class IV (Note 3)     126,511    
12b-1 fee – Class M (Note 3)     5,732    
Administration fee – Class M (Note 3)     4,587    
Custodian and fund accounting agent fees     791,364    
Legal fees     69,184    
Audit and tax fees     47,104    
Trustees fees and related expenses (Note 3)     35,807    
Transfer agent fees     35,236    
Registration fees     16,652    
Miscellaneous     47,564    
Total expenses     13,849,942    
Fees and expenses reimbursed by Manager (Note 3)     (987,784 )  
Expense reductions (Note 2)     (1,483 )  
Net expenses     12,860,675    
Net investment income (loss)     67,626,722    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments (net of foreign capital gains tax of $120,683) (Note 2)     (472,154,896 )  
Foreign currency, forward contracts and foreign currency related transactions     9,605,002    
Net realized gain (loss)     (462,549,894 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     1,630,808,311    
Foreign currency, forward contracts and foreign currency related transactions     664,462    
Net unrealized gain (loss)     1,631,472,773    
Net realized and unrealized gain (loss)     1,168,922,879    
Net increase (decrease) in net assets resulting from operations   $ 1,236,549,601    

 

See accompanying notes to the financial statements.


20


GMO Foreign Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 67,626,722     $ 222,653,366    
Net realized gain (loss)     (462,549,894 )     (363,356,742 )  
Change in net unrealized appreciation (depreciation)     1,631,472,773       (3,272,777,591 )  
Net increase (decrease) in net assets from operations     1,236,549,601       (3,413,480,967 )  
Distributions to shareholders from:  
Net investment income  
Class II     (18,230,535 )     (15,392,810 )  
Class III     (56,211,753 )     (74,322,210 )  
Class IV     —       (49,698,946 )  
Class M     (107,098 )     (136,270 )  
Total distributions from net investment income     (74,549,386 )     (139,550,236 )  
Net realized gains  
Class II     —       (30,952,457 )  
Class III     —       (153,074,862 )  
Class IV     —       (132,725,396 )  
Class M     —       (278,249 )  
Total distributions from net realized gains     —       (317,030,964 )  
      (74,549,386 )     (456,581,200 )  
Net share transactions (Note 7):  
Class II     (198,334,686 )     328,041,113    
Class III     (1,129,270,179 )     (98,648,505 )  
Class IV     571,820,303       (1,707,487,765 )  
Class M     (129,474 )     237,607    
Increase (decrease) in net assets resulting from net share
transactions		     (755,914,036 )     (1,477,857,550 )  
Total increase (decrease) in net assets     406,086,179       (5,347,919,717 )  
Net assets:  
Beginning of period     3,157,875,388       8,505,795,105    
End of period (including accumulated undistributed net investment
income of $55,874,385 and $62,797,049, respectively)		   $ 3,563,961,567     $ 3,157,875,388    

 

See accompanying notes to the financial statements.


21



GMO Foreign Fund

(A Series of GMO Trust)

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

    Six Months
Ended
August 31, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 8.03     $ 16.52     $ 18.56     $ 16.70     $ 15.13     $ 13.29    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.19       0.45       0.40       0.38       0.28       0.26    
Net realized and unrealized
gain (loss)		     3.32       (7.95 )     (0.36 )     3.06       2.46       2.28    
Total from investment
operations		     3.51       (7.50 )     0.04       3.44       2.74       2.54    
Less distributions to shareholders:  
From net investment income     (0.23 )     (0.33 )     (0.44 )     (0.43 )     (0.33 )     (0.34 )  
From net realized gains     —       (0.66 )     (1.64 )     (1.15 )     (0.84 )     (0.36 )  
Total distributions     (0.23 )     (0.99 )     (2.08 )     (1.58 )     (1.17 )     (0.70 )  
Net asset value, end of period   $ 11.31     $ 8.03     $ 16.52     $ 18.56     $ 16.70     $ 15.13    
Total Return(a)      44.26 %**      (47.49 )%     (0.78 )%     21.21 %     19.01 %     19.40 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 794,752     $ 765,201     $ 848,359     $ 1,018,021     $ 1,213,447     $ 808,149    
Net expenses to average daily
net assets		     0.82 %(b)*      0.82 %(c)      0.82 %(c)      0.82 %     0.82 %     0.82 %  
Net investment income to
average daily net assets		     3.90 %*      3.42 %     2.10 %     2.17 %     1.82 %     1.92 %  
Portfolio turnover rate     34 %**      39 %     29 %     23 %     25 %     23 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.06 %*      0.05 %     0.05 %     0.05 %     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.

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

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


22


GMO Foreign Fund

(A Series of GMO Trust)

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

    Six Months
Ended
August 31, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 8.07     $ 16.59     $ 18.64     $ 16.76     $ 15.18     $ 13.34    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.19       0.47       0.41       0.38       0.30       0.26    
Net realized and unrealized
gain (loss)		     3.35       (7.99 )     (0.36 )     3.09       2.45       2.30    
Total from investment
operations		     3.54       (7.52 )     0.05       3.47       2.75       2.56    
Less distributions to shareholders:  
From net investment income     (0.23 )     (0.34 )     (0.46 )     (0.44 )     (0.33 )     (0.36 )  
From net realized gains     —       (0.66 )     (1.64 )     (1.15 )     (0.84 )     (0.36 )  
Total distributions     (0.23 )     (1.00 )     (2.10 )     (1.59 )     (1.17 )     (0.72 )  
Net asset value, end
of period		   $ 11.38     $ 8.07     $ 16.59     $ 18.64     $ 16.76     $ 15.18    
Total Return(a)      44.42 %**      (47.42 )%     (0.75 )%     21.36 %     19.07 %     19.41 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 1,734,421     $ 2,054,885     $ 4,078,545     $ 4,556,742     $ 3,800,326     $ 3,663,370    
Net expenses to average daily
net assets		     0.75 %(b)*      0.75 %(c)      0.75 %(c)      0.75 %     0.75 %     0.75 %  
Net investment income to
average daily net assets		     3.98 %*      3.51 %     2.16 %     2.11 %     1.97 %     1.87 %  
Portfolio turnover rate     34 %**      39 %     29 %     23 %     25 %     23 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.06 %*      0.05 %     0.05 %     0.05 %     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.

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

†  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 IV share outstanding throughout each period)

    Six Months
Ended
August 31, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 8.07     $ 16.59     $ 18.64     $ 16.77     $ 15.18     $ 13.34    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.23       0.51       0.40       0.36       0.31       0.28    
Net realized and unrealized
gain (loss)		     3.34       (8.02 )     (0.34 )     3.11       2.47       2.28    
Total from investment
operations		     3.57       (7.51 )     0.06       3.47       2.78       2.56    
Less distributions to shareholders:  
From net investment income     —       (0.35 )     (0.47 )     (0.45 )     (0.35 )     (0.36 )  
From net realized gains     —       (0.66 )     (1.64 )     (1.15 )     (0.84 )     (0.36 )  
Total distributions     —       (1.01 )     (2.11 )     (1.60 )     (1.19 )     (0.72 )  
Net asset value, end of period   $ 11.64     $ 8.07     $ 16.59     $ 18.64     $ 16.77     $ 15.18    
Total Return(a)      44.24 %**      (47.39 )%     (0.68 )%     21.36 %     19.22 %     19.47 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,029,584     $ 334,003     $ 3,571,516     $ 3,424,024     $ 2,007,037     $ 1,169,805    
Net expenses to average daily
net assets		     0.69 %(b)*      0.69 %(c)      0.69 %(c)      0.69 %     0.69 %     0.69 %  
Net investment income to
average daily net assets		     4.75 %*      3.70 %     2.08 %     2.04 %     1.98 %     2.00 %  
Portfolio turnover rate     34 %**      39 %     29 %     23 %     25 %     23 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.06 %*      0.05 %     0.05 %     0.05 %     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.

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

†  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 M share outstanding throughout each period)

    Six Months
Ended
August 31, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of period   $ 8.07     $ 16.58     $ 18.63     $ 16.75     $ 15.19     $ 13.25    
Income (loss) from investment operations:  
Net investment income (loss)†      0.18       0.41       0.35       0.30       0.24       0.30    
Net realized and unrealized gain (loss)     3.34       (7.96 )     (0.36 )     3.12       2.46       2.21    
Total from investment operations     3.52       (7.55 )     (0.01 )     3.42       2.70       2.51    
Less distributions to shareholders:  
From net investment income     (0.23 )     (0.30 )     (0.40 )     (0.39 )     (0.30 )     (0.21 )  
From net realized gains     —       (0.66 )     (1.64 )     (1.15 )     (0.84 )     (0.36 )  
Total distributions     (0.23 )     (0.96 )     (2.04 )     (1.54 )     (1.14 )     (0.57 )  
Net asset value, end of period   $ 11.36     $ 8.07     $ 16.58     $ 18.63     $ 16.75     $ 15.19    
Total Return(a)      44.10 %**      (47.58 )%     (1.05 )%     21.04 %     18.66 %     19.18 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 5,205     $ 3,786     $ 7,375     $ 8,258     $ 5,673     $ 3,508    
Net expenses to average daily net assets     1.05 %(b)*      1.05 %(c)      1.05 %(c)      1.05 %     1.05 %     1.05 %  
Net investment income to average daily
net assets		     3.57 %*      3.11 %     1.81 %     1.69 %     1.56 %     2.24 %  
Portfolio turnover rate     34 %**      39 %     29 %     23 %     25 %     23 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.06 %*      0.05 %     0.05 %     0.05 %     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.

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

†  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)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Foreign Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 companies tied economically to non-U.S. countries, including companies that issue stocks included in the MSCI international developed country universe (the universe of securities from which the MSCI EAFE Index, a developed markets index, is constructed) and companies whose stocks are traded in the securities markets of the world's non-developed countries ("emerging countries"). Under normal circumstances, the Fund invests at least 80% of its assets in investments tied economically to countries outside the U.S. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions. The Fund, however, may hold up to 10% of its total assets in cash and cash equivalents to manage cash inflows and outflows as a result of shareholder purc hases and redemptions. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. The Fund typically invests in emerging countries, but these investments generally represent 10% or less of the Fund's total assets. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the-counter derivatives, including, without limitation, futures and options. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

Throughout the period ended August 31, 2009, 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 they bear.

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.


26


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 95.35% of the net assets of the Fund were valued using fair value prices base d on models used by a third party vendor and are classified as using Level 2 inputs in the table below.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund considered certain bankrupt securities to be worthless.


27


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Common Stocks  
Australia   $ —     $ 95,544,923     $ —     $ 95,544,923    
Austria     —       9,492,409       —       9,492,409    
Belgium     —       27,683,664       —       27,683,664    
Brazil     22,135,965       —       —       22,135,965    
Canada     —       —       0 *      0    
Finland     —       128,494,038       —       128,494,038    
France     26,834,260       381,355,929       —       408,190,189    
Germany     —       242,776,125       —       242,776,125    
Greece     —       29,458,516       —       29,458,516    
Hong Kong     —       114,900,961       —       114,900,961    
India     4,258,155       —       —       4,258,155    
Ireland     —       4,817,038       —       4,817,038    
Italy     —       308,461,029       —       308,461,029    
Japan     —       757,710,177       —       757,710,177    
Mexico     2,885,220       —       —       2,885,220    
Netherlands     —       95,496,963       —       95,496,963    
New Zealand     —       607,915       —       607,915    
Norway     —       56,776,879       —       56,776,879    
Philippines     —       3,237,521       —       3,237,521    
Singapore     —       20,254,684       —       20,254,684    
South Korea     —       38,208,523       —       38,208,523    
Spain     —       97,638,001       —       97,638,001    
Sweden     —       84,764,749       —       84,764,749    
Switzerland     —       109,425,938       —       109,425,938    
Taiwan     3,285,697       15,710,660       —       18,996,357    
Turkey     —       3,899,080       —       3,899,080    
United Kingdom     —       758,451,346       —       758,451,346    
TOTAL COMMON STOCKS     59,399,297       3,385,167,068       0       3,444,566,365    

 


28


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

ASSET VALUATION INPUTS — continued

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Preferred Stocks  
Brazil   $ 4,844,827     $ —     $ —     $ 4,844,827    
Germany     —       11,371,818       —       11,371,818    
Italy     —       1,798,534       —       1,798,534    
TOTAL PREFERRED STOCKS     4,844,827       13,170,352       —       18,015,179    
Rights and Warrants  
Greece     —       837,460       —       837,460    
Italy     —       49,374       —       49,374    
Switzerland     —       110,748       —       110,748    
TOTAL RIGHTS AND WARRANTS     —       997,582       —       997,582    
Short-Term Investments     81,036,113       —       —       81,036,113    
Total Investments     145,280,237       3,399,335,002       —       3,544,615,239    
Total   $ 145,280,237     $ 3,399,335,002     $ 0     $ 3,544,615,239    

 

*  Represents the interest in securities that have no value at August 31, 2009.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Common Stocks  
Australia   $ 1,006,270     $ 844,164     $ —     $ (1,162,300 )   $ 3,967,233     $ (4,655,367 )   $ —    
Canada     1,730       —       —       —       (1,730 )     —       —    
Total   $ 1,008,000     $ 844,164     $ —     $ (1,162,300 )   $ 3,965,503     $ (4,655,367 )   $ —    

 


29


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some circumstances, futures exchanges may establish daily limits on the


30


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign futures on those exchanges do not reflect events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign futures using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor based on that vendor's proprietary models. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.


31


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and warrants held by the Fund 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 carryforwards 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 certain countries in which it invests. For the period ended August 31, 2009, the Fund incurred $120,683 in capital gains tax, which is included in net realized gain (loss) 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


32


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $257,668,488.

As of February 28, 2009, 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:

2/28/2017   $ (72,173,104 )  
Total   $ (72,173,104 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 3,585,450,110     $ 298,111,233     $ (338,946,104 )   $ (40,834,871 )  

 

For the period ended August 31, 2009, the Fund had net realized losses attributed to redemption in-kind transactions of $44,659,286.

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of


33


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 among the classes of shares of the Fund based on the relative net assets of each class. Shareholder service fees, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the


34


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Market Risk — Value Securities — The Fund purchases some equity securities at prices below what the Manager believes to be their fundamental value. The Fund bears the risk that the price of these securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security, will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise honor its obligations.

Other principal risks of an investment in the Fund include Liquidity Risk (difficulty in selling Fund investments), Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments in companies with smaller market capitalizations), and Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates,


35


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index). The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by


36


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterparties may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


37


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (rights and
warrants)		   $ —     $ —     $ —     $ 997,582     $ —     $ 997,582    
Unrealized appreciation on futures
contracts* 		     —       —       —       —       —       —    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 997,582     $ —     $ 997,582    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on futures
contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


38


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (rights and warrants)   $ —     $ —     $ —     $ (279,503 )   $ —     $ (279,503 )  
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ (279,503 )   $ —     $ (279,503 )  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (rights and warrants)   $ —     $ —     $ —     $ (85,564 )   $ —     $ (85,564 )  
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ (85,564 )   $ —     $ (85,564 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Rights/Warrants  
Average notional amount outstanding   $ 1,074,802    
Highest notional amount outstanding     5,135,685    
Lowest notional amount outstanding     14,791    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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


39


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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.

Holders of 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 net assets of Class M shares. Pursuant to a Rule 12b-1 distribution and service plan adopted by the Fund, holders of Class M shares of the Fund may pay a fee, at the annual rate of up to 1.00% of average daily net assets of Class M shares 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 net assets of Class M shares.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.60% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, administration fees, distribution (12b-1) fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an inve stment company (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.60% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.60% of the Fund's average daily net assets.

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, 2009 was $28,539 and $16,836, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.


40


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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, 2009 aggregated $1,096,715,246 and $1,529,382,563, respectively. Proceeds from sales of securities for in-kind transactions for the period ended August 31, 2009 were $343,570,560.

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, the Fund had no shareholders who individually held more than 10% of the Fund's outstanding shares.

As of August 31, 2009, 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 1.48% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class II:   Shares   Amount   Shares   Amount  
Shares sold     1,205,915     $ 11,841,237       58,274,223     $ 511,976,197    
Shares issued to shareholders
in reinvestment of distributions		     1,497,403       14,494,861       3,196,851       40,987,454    
Shares repurchased     (27,756,379 )     (224,670,784 )     (17,540,416 )     (224,922,538 )  
Net increase (decrease)     (25,053,061 )   $ (198,334,686 )     43,930,658     $ 328,041,113    

 


41


GMO Foreign Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     10,976,871     $ 65,171,586       107,907,531     $ 953,731,183    
Shares issued to shareholders
in reinvestment of distributions		     4,223,561       41,095,249       15,342,666       200,755,062    
Shares repurchased     (117,456,864 )     (1,235,537,014 )     (114,403,163 )     (1,253,134,750 )  
Net increase (decrease)     (102,256,432 )   $ (1,129,270,179 )     8,847,034     $ (98,648,505 )  
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     88,385,571     $ 996,286,516       1,297,973     $ 19,976,078    
Shares issued to shareholders
in reinvestment of distributions		     —       —       11,448,393       156,652,652    
Shares repurchased     (41,363,438 )     (424,466,213 )     (186,625,494 )     (1,884,116,495 )  
Net increase (decrease)     47,022,133     $ 571,820,303       (173,879,128 )   $ (1,707,487,765 )  
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class M:   Shares   Amount   Shares   Amount  
Shares sold     29,748     $ 286,962       70,075     $ 896,218    
Shares issued to shareholders
in reinvestment of distributions		     11,007       107,098       32,761       414,519    
Shares repurchased     (52,076 )     (523,534 )     (78,335 )     (1,073,130 )  
Net increase (decrease)     (11,321 )   $ (129,474 )     24,501     $ 237,607    

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


42



GMO Foreign Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The


43


GMO Foreign Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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 distribu tion services) it provided to the Fund and the Trust, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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,


44


GMO Foreign Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


45


GMO Foreign Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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.


46


GMO Foreign Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2009 (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 II      
1) Actual     0.82 %   $ 1,000.00     $ 1,442.60     $ 5.05    
2) Hypothetical     0.82 %   $ 1,000.00     $ 1,021.07     $ 4.18    
Class III      
1) Actual     0.75 %   $ 1,000.00     $ 1,444.20     $ 4.62    
2) Hypothetical     0.75 %   $ 1,000.00     $ 1,021.42     $ 3.82    
Class IV      
1) Actual     0.69 %   $ 1,000.00     $ 1,442.40     $ 4.25    
2) Hypothetical     0.69 %   $ 1,000.00     $ 1,021.73     $ 3.52    
Class M      
1) Actual     1.05 %   $ 1,000.00     $ 1,441.00     $ 6.46    
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, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


47



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     93.8 %  
Short-Term Investments     3.3    
Preferred Stocks     0.2    
Debt Obligations     0.0    
Rights and Warrants     0.0    
Other     2.7    
      100.0 %  
Country Summary   % of Equity Investments  
Japan     20.4 %  
United Kingdom     15.6    
Italy     8.3    
Germany     8.1    
France     6.5    
Netherlands     6.3    
Switzerland     4.6    
Finland     4.5    
Hong Kong     3.6    
Canada     2.6    
Australia     2.5    
Norway     2.4    
South Korea     2.4    
Sweden     2.0    
Brazil     1.4    
China     1.4    
Singapore     1.3    
Belgium     1.0    
Spain     1.0    
Mexico     0.8    
New Zealand     0.6    
Philippines     0.6    
Taiwan     0.5    
Greece     0.4    
Thailand     0.4    
Austria     0.3    
Indonesia     0.2    
Ireland     0.2    
India     0.1    
Cyprus     0.0    
      100.0 %  

 


1


GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Industry Group Summary   % of Equity Investments  
Capital Goods     15.1 %  
Materials     9.0    
Energy     7.8    
Food, Beverage & Tobacco     6.4    
Software & Services     5.8    
Consumer Durables & Apparel     5.2    
Commercial & Professional Services     5.1    
Retailing     4.9    
Pharmaceuticals, Biotechnology & Life Sciences     4.7    
Diversified Financials     4.1    
Automobiles & Components     3.9    
Insurance     3.8    
Banks     3.6    
Consumer Services     3.6    
Technology Hardware & Equipment     3.2    
Media     3.2    
Transportation     2.9    
Real Estate     2.9    
Health Care Equipment & Services     1.5    
Utilities     1.1    
Telecommunication Services     1.0    
Household & Personal Products     1.0    
Food & Staples Retailing     0.2    
      100.0 %  

 


2



GMO Foreign Small Companies Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 93.8%  
        Australia — 2.4%  
    78,778     Aristocrat Leisure Ltd     307,891    
    350,000     Asciano Group *      471,164    
    132,693     Australian Vintage Ltd *      35,906    
    361,031     Fairfax Media Ltd     448,162    
    130,587     Goodman Group     68,397    
    270,209     Insurance Australia Group Ltd     816,225    
    239,631     Iress Market Technology Ltd     1,669,232    
    101,189     Metcash Ltd     365,041    
    700,000     Mirvac Group     870,973    
    374,814     Tatts Group Ltd     785,275    
    400,000     Ten Network Holdings Ltd     420,495    
    225,000     WDS Ltd     372,688    
    75,177     West Australian Newspapers Holdings Ltd     424,940    
    Total Australia     7,056,389    
        Austria — 0.3%  
    9,907     Flughafen Wien AG     419,425    
    16,768     Wienerberger AG *      383,302    
    Total Austria     802,727    
        Belgium — 1.0%  
    14,378     Bekaert NV     1,913,021    
    34,000     Umicore     922,682    
    Total Belgium     2,835,703    
        Brazil — 1.3%  
    410,100     Cia Hering     3,984,152    
        Canada — 2.4%  
    112,400     Flint Energy Services Ltd *      1,059,573    
    197,400     Gammon Gold Inc *      1,325,316    
    52,800     ING Canada Inc     1,638,862    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Canada — continued  
    90,600     KAP Resources Ltd * (a) (b)      828    
    138,400     Linamar Corp     1,605,554    
    400,000     OPTI Canada Inc 144A *      617,493    
    164,800     Precision Drilling Trust     940,854    
    Total Canada     7,188,480    
        China — 1.3%  
    4,055,000     Uni-President China Holding Ltd     2,255,953    
    4,865,000     Xingda International Holdings Ltd     1,713,558    
    Total China     3,969,511    
        Finland — 4.2%  
    25,390     Atria Group Plc     409,783    
    24,833     Hk-Ruokatalo Oyj Class A     306,059    
    63,606     KCI Konecranes Oyj     1,804,524    
    38,479     Marimekko Oyj     565,236    
    90,588     Nokian Renkaat Oyj     2,041,842    
    256,270     Oriola-KD Oyj Class B     1,306,717    
    60,000     Orion Oyj Class B     1,020,309    
    161,575     Tieto Oyj     2,957,561    
    156,144     YIT Oyj     2,238,304    
    Total Finland     12,650,335    
        France — 6.1%  
    100,000     Air France-KLM *      1,530,007    
    65,435     Boursorama *      601,098    
    40,008     Cap Gemini SA     1,941,113    
    8,814     CNP Assurances     880,540    
    3,629     Damartex SA     72,925    
    31,077     Essilor International SA     1,681,341    
    9,341     Eurazeo     506,054    
    60,000     Faurecia *      828,336    
    3,039     Gaumont SA     168,931    
    32,724     JC Decaux SA *      709,441    
    30,851     Mercialys SA     1,133,214    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        France — continued  
    37,500     Renault SA *      1,692,062    
    26,292     Technip SA     1,630,452    
    25,900     Teleperformance     892,335    
    96,712     TF1 SA     1,568,871    
    10,000     Virbac SA     904,629    
    40,031     Zodiac Aerospace     1,521,728    
    Total France     18,263,077    
        Germany — 7.4%  
    33,107     Adidas AG     1,561,449    
    4,404     Axel Springer AG     386,496    
    39,700     Beiersdorf AG     2,015,408    
    67,386     Cat Oil AG *      390,082    
    13,955     Celesio AG     380,259    
    23,183     Commerzbank AG *      214,344    
    95,828     Francotyp-Postalia Holdings AG *      213,122    
    20,201     Fraport AG     1,022,603    
    61,053     Gagfah SA     551,958    
    80,000     GEA Group AG     1,420,893    
    167,760     Gerresheimer AG     4,731,535    
    71,173     GFK SE     2,170,729    
    36,699     Heidelberger Druckmaschinen AG *      321,534    
    6,133     MAN SE     470,168    
    31,199     Nemetschek AG *      624,863    
    286,133     Patrizia Immobilien AG *      1,267,600    
    150,000     Praktiker Bau-Und Heimwerkermaerkte Holding AG     1,940,046    
    148,722     Symrise AG     2,461,620    
    Total Germany     22,144,709    
        Greece — 0.4%  
    32,435     Bank of Cyprus Public Co Ltd     224,994    
    42,200     Metka SA     533,934    
    36,350     Mytilineos Holdings SA     304,735    
    Total Greece     1,063,663    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Hong Kong — 3.4%  
    580,600     Dah Sing Financial Group     3,130,790    
    1,998,696     Hong Kong & Shanghai Hotels     2,253,994    
    420,000     Melco Crown Entertainment Ltd *      2,574,600    
    4,204,000     TPV Technology Ltd     2,284,637    
    Total Hong Kong     10,244,021    
        India — 0.1%  
    56,270     Welspun Gujarat Stahl Ltd     269,843    
        Indonesia — 0.2%  
    350,000     United Tractors Tbk PT     469,572    
        Ireland — 0.2%  
    22,789     DCC Plc     552,718    
        Italy — 7.8%  
    143,657     Arnoldo Mondadori Editore SPA *      619,764    
    150,000     Autogrill SPA *      1,692,281    
    43,328     Banco Popolare Scarl *      384,525    
    63,529     Brembo SPA     496,299    
    72,532     Buzzi Unicem SPA     1,243,128    
    252,411     Credito Emiliano SPA *      1,566,324    
    50,000     ERG SPA     715,026    
    131,773     Exor SPA     2,271,454    
    63,369     Finmeccanica SPA     1,014,136    
    228,200     Fondiaria-Sai SPA-Di RISP     2,676,253    
    119,301     Grouppo Editoriale L'Espresso *      258,106    
    143,882     Indesit Company SPA *      988,854    
    40,458     Italcementi SPA     608,749    
    210,000     Italcementi SPA-Di RISP     1,630,283    
    28,135     Lottomatica SPA     634,248    
    233,456     Mediaset SPA     1,538,955    
    800,000     Pirelli & C SPA *      384,009    
    117,000     Prysmian SPA     2,191,938    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Italy — continued  
    792,655     Telecom Italia SPA-Di RISP     900,529    
    100,428     Unione di Banche Italiane ScpA     1,519,624    
    Total Italy     23,334,485    
        Japan — 19.2%  
    165,000     Air Water Inc     1,894,768    
    155,100     Capcom     3,045,922    
    370     EPS Co Ltd     1,523,116    
    220,000     Fuji Oil Co Ltd     3,087,015    
    200     Global One REIT Co Ltd     1,489,978    
    140,000     Hitachi Chemical Co Ltd     2,885,174    
    190,000     Hitachi Koki Co Ltd     2,012,445    
    200,000     Hitachi Transport System Ltd     2,700,878    
    150,000     K's Holdings Corp     4,600,548    
    260,000     Keiyo Bank Ltd (The)     1,411,559    
    99,000     Kyorin Co Ltd     1,681,717    
    160,000     Leopalace21 Corp     1,447,251    
    55,380     Mitsubishi UFJ Lease & Finance Co Ltd     1,755,027    
    230,000     Nabtesco Corp     2,556,572    
    325,000     NHK Spring Co Ltd     2,394,455    
    45,000     Nissha Printing Co Ltd     2,370,019    
    270,000     Nissin Electric Co Ltd     1,499,199    
    16,500     Obic Co Ltd     2,694,019    
    94,000     Rohto Pharmaceutical Co Ltd     1,204,251    
    140,700     Shimachu Co Ltd     3,315,655    
    197,000     Shimadzu Corp     1,428,378    
    101,300     Sumitomo Rubber Industries     972,143    
    125,000     Toei Co Ltd     709,782    
    250,000     Tokuyama Corp     1,746,074    
    113,000     Toyo Suisan Kaisha Ltd     2,875,848    
    400,000     Tsubakimoto Chain Co     1,741,203    
    80,000     Yamato Kogyo Co     2,383,852    
    Total Japan     57,426,848    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Mexico — 0.8%  
    853,900     Genomma Lab Internacional SA Class B *      1,205,311    
    247,800     Grupo Continental SAB de CV     477,814    
    190,000     Industrias CH SAB de CV *      694,453    
    Total Mexico     2,377,578    
        Netherlands — 5.9%  
    161,292     CSM     3,510,529    
    35,000     Fugro NV     1,888,461    
    84,662     Imtech NV     2,055,442    
    96,403     Koninklijke Ten Cate NV     2,041,997    
    54,481     Randstad Holdings NV *      2,257,332    
    99,027     SBM Offshore NV     2,062,848    
    382,966     SNS Reaal NV *      2,957,773    
    50,000     USG People NV *      810,686    
    Total Netherlands     17,585,068    
        New Zealand — 0.5%  
    232,564     Air New Zealand     199,157    
    623,084     Sky City Entertainment Group Ltd     1,391,164    
    Total New Zealand     1,590,321    
        Norway — 2.3%  
    100,000     Aker Solutions ASA     985,344    
    145,000     DNO International ASA *      152,820    
    1,985,000     Dockwise Ltd *      2,267,324    
    400,000     Prosafe ASA     1,955,987    
    647,885     Prosafe Production Public Ltd *      1,362,603    
    Total Norway     6,724,078    
        Philippines — 0.6%  
    7,203,000     Aboitiz Power Corp     912,976    
    2,870,000     Alliance Global Group Inc *      299,037    
    13,170,000     Pepsi-Cola Products Philippines Inc     576,718    
    Total Philippines     1,788,731    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Singapore — 1.2%  
    1,710,000     Chemoil Energy Ltd     905,146    
    1,584,000     Financial One Corp *      329,218    
    1,660,000     First Ship Lease Trust     703,742    
    500,000     MobileOne Ltd     593,606    
    958,000     Petra Foods Ltd (a)      533,760    
    75,000     Venture Corp Ltd     448,203    
    Total Singapore     3,513,675    
        South Korea — 2.2%  
    8,440     Cheil Industries Inc     345,457    
    128,039     Handsome Corp     1,166,734    
    1,676     Hite Brewery Co Ltd     219,270    
    28,080     Korea Electric Terminal Co     410,830    
    124,336     Kortek Corp     1,013,557    
    8,497     Nong Shim Co Ltd     1,611,628    
    7,641     Pulmuone Holdings Co Ltd     361,077    
    29,370     Samsung Card Co Ltd     1,197,739    
    19,500     Youngone Holding Co Ltd     346,942    
    Total South Korea     6,673,234    
        Spain — 0.9%  
    1,000     Construcciones y Auxiliar de Ferrocarriles SA     482,548    
    28,135     Grifols SA     495,978    
    93,535     Mapfre SA     385,207    
    14,630     Red Electrica de Espana     687,306    
    12,379     Tecnicas Reunidas SA     674,496    
    Total Spain     2,725,535    
        Sweden — 1.8%  
    95,810     B&B Tools AB     1,082,276    
    58,904     Getinge AB Class B     1,012,592    
    10,000     Millicom International Cellular SA SDR *      702,184    
    101,429     SAAB AB Class B     1,181,379    
    1,090,925     Trigon Agri A/S *      1,539,906    
    Total Sweden     5,518,337    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Switzerland — 4.4%  
    4,220     Banque Cantonale Vaudoise     1,571,778    
    260,000     Clariant AG (Registered) *      2,357,955    
    13,798     Geberit AG (Registered)     2,127,401    
    5,790     Helvetia Patria Holding (Registered)     1,862,251    
    85,338     Kardex AG *      2,522,441    
    26,000     Sulzer AG     2,017,083    
    2,473     Valora Holding AG     537,144    
    Total Switzerland     12,996,053    
        Taiwan — 0.5%  
    120,290     Catcher Technology Co Ltd     310,144    
    148,800     Giant Manufacturing Co Ltd     380,089    
    2,121,280     Gold Circuit Electronics Ltd     829,905    
    Total Taiwan     1,520,138    
        Thailand — 0.4%  
    5,357,000     Home Product Center Pcl (Foreign Registered) (a)      1,103,372    
        United Kingdom — 14.6%  
    68,591     AMEC Plc     837,188    
    86,929     Amlin Plc     519,553    
    238,524     Aquarius Platinum Ltd     1,029,964    
    222,272     Balfour Beatty Plc     1,213,163    
    56,270     Berkeley Group Holdings Plc (Unit Shares) *      863,231    
    100,835     Bodycote Plc     279,204    
    80,248     Bovis Homes Group Plc     688,772    
    78,241     Brit Insurance Holdings Plc     275,665    
    246,913     British Airways Plc *      764,474    
    112,540     Carillion Plc     539,027    
    197,260     Catlin Group Ltd     1,061,253    
    43,732     Chemring Group     1,482,046    
    71,944     Cobham Plc     235,725    
    28,135     Connaught Plc     171,462    
    62,350     Cookson Group Plc     397,851    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    112,540     Davis Service Group (Ordinary)     718,748    
    47,733     De La Rue Plc     674,728    
    1,056,910     Dimension Data Holdings Plc     1,018,144    
    705,063     Galliford Try Plc     674,297    
    400,000     GKN Plc *      705,518    
    35,336     Go-Ahead Group Plc     776,546    
    124,498     Group 4 Securicor Plc     450,049    
    634,816     Hays Plc     1,068,641    
    123,500     Healthcare Locums Plc     453,737    
    43,384     Hikma Pharmaceuticals Plc     326,341    
    100,000     Hiscox Ltd     548,887    
    43,392     Homeserve Plc     1,031,488    
    65,027     ICAP Plc     450,941    
    1,500,000     Inchcape Plc *      672,950    
    80,728     Inmarsat Plc     681,238    
    93,179     International Personal Finance Plc     229,334    
    257,957     John Wood Group Plc     1,246,643    
    21,210     Johnson Matthey Plc     486,404    
    56,427     Kazakhmys Plc     895,504    
    56,572     Kier Group Plc     1,042,228    
    104,582     Lamprell Plc     266,473    
    256,389     Mitie Group Plc     1,081,858    
    116,559     N Brown Group     417,198    
    41,270     New Britain Palm Oil Ltd     251,370    
    39,833     Next Plc     1,056,585    
    133,948     Northumbrian Water Group Plc     514,500    
    79,863     Pennon Group Plc     597,178    
    80,332     Petrofac Ltd     1,143,326    
    171,936     Playtech Ltd     933,894    
    32,355     Provident Financial Plc     463,736    
    32,600     Punch Taverns Plc *      69,313    
    234,136     PZ Cussons Plc     826,020    
    287,620     Qinetiq Group Plc     650,524    
    372,025     RM Plc     1,000,384    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    139,603     RPS Group Plc     452,818    
    87,700     Sage Group Plc     313,584    
    144,742     Savills Plc     848,069    
    80,952     Segro Plc     470,529    
    236,295     Serco Group Plc     1,794,154    
    100,000     SIG Plc     227,180    
    58,160     Smith News Plc     113,418    
    13,390     Soco International Plc *      285,556    
    404,863     Spice Plc     468,535    
    140,675     Stagecoach Group Plc     307,224    
    37,398     Travis Perkins Plc     487,948    
    238,255     TT Group Plc     229,176    
    53,545     Ultra Electronics Holdings     1,093,749    
    124,473     United Business Media Ltd     934,712    
    33,275     Venture Production (Ordinary Shares)     455,841    
    132,606     VT Group Plc     1,109,588    
    100,000     William Hill Plc     299,956    
    19,019     Wolseley Plc (Deferred) *      —    
    Total United Kingdom     43,675,340    
    TOTAL COMMON STOCKS (COST $255,857,926)     280,047,693    
        PREFERRED STOCKS — 0.2%  
        Germany — 0.2%  
    77,439     ProSiebenSat.1 Media AG 0.32%     716,564    
        Italy — 0.0%  
    4,783     Exor SPA 5.65%     47,949    
    TOTAL PREFERRED STOCKS (COST $296,239)     764,513    

 

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, 2009 (Unaudited)

Shares /
Par Value		   Description   Value ($)  
        DEBT OBLIGATIONS — 0.0%  
        Cyprus — 0.0%  
    35,678     Bank of Cyprus Ltd, 5.50% , due 06/30/14     51,148    
    TOTAL DEBT OBLIGATIONS (COST $48,685)     51,148    
        RIGHTS AND WARRANTS — 0.0%  
        Italy — 0.0%  
    100,428     UBI Banca Scpa Warrants, Expires 06/30/11 *      9,963    
    TOTAL RIGHTS AND WARRANTS (COST $0)     9,963    
        SHORT-TERM INVESTMENTS — 3.3%  
EUR     1,393,777     Allied Irish Bank Time Deposit, 0.06%, due 09/01/09     1,998,118    
EUR     1,393,777     Bank of Ireland Time Deposit, 0.06%, due 09/01/09     1,998,118    
USD     1,800,000     BNP Paribas Time Deposit, 0.18%, due 09/01/09     1,800,000    
JPY     974,120     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,470    
USD     41,591     DnB Nor Bank Time Deposit, 0.03%, due 09/01/09     41,591    
EUR     1,311,522     ING Bank Time Deposit, 0.06%, due 09/01/09     1,880,198    
USD     2,000,000     Societe Generale Time Deposit, 0.13%, due 09/01/09     2,000,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $9,728,495)     9,728,495    
            TOTAL INVESTMENTS — 97.3%
(Cost $265,931,345)		     290,601,812    
            Other Assets and Liabilities (net) — 2.7%     8,015,782    
    TOTAL NET ASSETS — 100.0%   $ 298,617,594    

 

See accompanying notes to the financial statements.


13


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (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)  Security valued at fair value using methods determined in good faith by or at the direction of the Trustees of GMO Trust.

(b)  Bankrupt issuer.

Currency Abbreviations:

EUR - Euro

JPY - Japanese Yen

USD - United States Dollar

See accompanying notes to the financial statements.


14



GMO Foreign Small Companies Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $265,931,345) (Note 2)   $ 290,601,812    
Cash     5,104,375    
Foreign currency, at value (cost $1,991,432) (Note 2)     2,032,212    
Receivable for investments sold     2,340,406    
Dividends and interest receivable     308,381    
Foreign taxes receivable     100,220    
Receivable for foreign currency sold     4,208    
Receivable for expenses reimbursed by Manager (Note 3)     19,623    
Miscellaneous receivable     842,742    
Total assets     301,353,979    
Liabilities:  
Payable for investments purchased     1,629,251    
Payable to affiliate for (Note 3):  
Management fee     172,120    
Shareholder service fee     34,763    
Trustees and Chief Compliance Officer of GMO Trust fees     789    
Miscellaneous payable     657,414    
Accrued expenses     242,048    
Total liabilities     2,736,385    
Net assets   $ 298,617,594    
Net assets consist of:  
Paid-in capital   $ 453,850,751    
Accumulated undistributed net investment income     1,302,846    
Accumulated net realized loss     (181,268,586 )  
Net unrealized appreciation     24,732,583    
    $ 298,617,594    
Net assets attributable to:  
Class III shares   $ 215,714,399    
Class IV shares   $ 82,903,195    
Shares outstanding:  
Class III     20,996,875    
Class IV     8,073,696    
Net asset value per share:  
Class III   $ 10.27    
Class IV   $ 10.27    

 

See accompanying notes to the financial statements.


15


GMO Foreign Small Companies Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $421,032)   $ 4,463,167    
Interest     196,848    
Total investment income     4,660,015    
Expenses:  
Management fee (Note 3)     893,007    
Shareholder service fee – Class III (Note 3)     175,751    
Shareholder service fee – Class IV (Note 3)     10,405    
Custodian and fund accounting agent fees     183,668    
Audit and tax fees     41,216    
Transfer agent fees     20,240    
Trustees fees and related expenses (Note 3)     10,390    
Legal fees     5,520    
Registration fees     460    
Miscellaneous     4,416    
Total expenses     1,345,073    
Fees and expenses reimbursed by Manager (Note 3)     (250,920 )  
Expense reductions (Note 2)     (200 )  
Net expenses     1,093,953    
Net investment income (loss)     3,566,062    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments (net of foreign capital gains tax of $13,136) (Note 2)     (97,376,837 )  
Foreign currency, forward contracts and foreign currency related transactions     526,813    
Net realized gain (loss)     (96,850,024 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     205,368,313    
Foreign currency, forward contracts and foreign currency related transactions     248,379    
Net unrealized gain (loss)     205,616,692    
Net realized and unrealized gain (loss)     108,766,668    
Net increase (decrease) in net assets resulting from operations   $ 112,332,730    

 

See accompanying notes to the financial statements.


16


GMO Foreign Small Companies Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 3,566,062     $ 19,309,912    
Net realized gain (loss)     (96,850,024 )     (84,483,562 )  
Change in net unrealized appreciation (depreciation)     205,616,692       (365,228,760 )  
Net increase (decrease) in net assets from operations     112,332,730       (430,402,410 )  
Distributions to shareholders from:  
Net investment income  
Class III     —       (5,535,606 )  
Class IV     —       (7,364,331 )  
Total distributions from net investment income     —       (12,899,937 )  
Net realized gains  
Class III     —       (17,878,843 )  
Class IV     —       (33,553,914 )  
Total distributions from net realized gains     —       (51,432,757 )  
Return of capital  
Class III     —       (183,326 )  
Class IV     —       (243,890 )  
Total distributions from return of capital     —       (427,216 )  
      —       (64,759,910 )  
Net share transactions (Note 7):  
Class III     (77,971,138 )     18,176,575    
Class IV     (64,656,187 )     (199,947,721 )  
Increase (decrease) in net assets resulting from net share
transactions		     (142,627,325 )     (181,771,146 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     17,567       14    
Class IV     32,431       27    
Increase in net assets resulting from purchase premiums and
redemption fees		     49,998       41    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (142,577,327 )     (181,771,105 )  
Total increase (decrease) in net assets     (30,244,597 )     (676,933,425 )  
Net assets:  
Beginning of period     328,862,191       1,005,795,616    
End of period (including accumulated undistributed net
investment income of $1,302,846 and distributions in excess
of net investment income of $2,263,216, respectively)		   $ 298,617,594     $ 328,862,191    

 

See accompanying notes to the financial statements.


17



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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 6.41     $ 14.63     $ 18.38     $ 17.98     $ 17.19     $ 14.79    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.12       0.30       0.31       0.28       0.26       0.26    
Net realized and unrealized
gain (loss)		     3.74       (7.43 )     (0.36 )     4.51       3.19       3.76    
Total from investment
operations		     3.86       (7.13 )     (0.05 )     4.79       3.45       4.02    
Less distributions to shareholders:  
From net investment income     —       (0.27 )     (0.41 )     (0.44 )     (0.32 )     (0.38 )  
From net realized gains     —       (0.81 )     (3.29 )     (3.95 )     (2.34 )     (1.24 )  
Return of capital     —       (0.01 )     —       —       —       —    
Total distributions     —       (1.09 )     (3.70 )     (4.39 )     (2.66 )     (1.62 )  
Net asset value, end of period   $ 10.27     $ 6.41     $ 14.63     $ 18.38     $ 17.98     $ 17.19    
Total Return(a)      60.22 %**      (51.33 )%     (1.96 )%     29.94 %     22.32 %     28.40 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 215,714     $ 185,298     $ 338,804     $ 375,565     $ 364,551     $ 426,758    
Net expenses to average daily
net assets		     0.86 %(b)*      0.85 %(c)      0.86 %(c)      0.86 %     0.85 %     0.85 %  
Net investment income to
average daily net assets		     2.86 %*      2.59 %     1.69 %     1.53 %     1.52 %     1.71 %  
Portfolio turnover rate     40 %**      42 %     42 %     37 %     40 %     25 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.20 %*      0.11 %     0.09 %     0.09 %     0.09 %     0.09 %  
Purchase premiums and redemption
fees consisted of the following
per share amounts:† 		   $ 0.00 (d)    $ 0.00 (d)      —       —       —       —    

 

(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.

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

(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.


18


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19


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

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

    Period from
August 12, 2009
through
August 31, 2009		   Period from
March 1, 2009
through
March 16, 2009		  
    (Unaudited)(a)    (Unaudited)(a)   
Net asset value, beginning of period   $ 9.84     $ 6.42    
Income (loss) from investment operations:  
Net investment income (loss)†      0.00       0.01    
Net realized and unrealized gain (loss)     0.43       0.01    
Total from investment operations     0.43       0.02    
Less distributions to shareholders:  
From net investment income     —       —    
From net realized gains     —       —    
Return of capital     —       —    
Total distributions     —       —    
Net asset value, end of period   $ 10.27     $ 6.44    
Total Return(b)      4.37 %**      0.31 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 82,903     $ 144,101    
Net expenses to average daily net assets     0.80 %(c)*      0.81 %(c)*   
Net investment income to average daily net assets     0.39 %*      3.28 %*   
Portfolio turnover rate     40 %††**      40 %††**   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.08 %*      0.22 %*   
Purchase premiums and redemption fees consisted of the following
per share amounts:† 		   $ 0.00 (e)    $ 0.00 (e)   

 

(a)  The class was inactive from March 17, 2009 to August 12, 2009.

(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.

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

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

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover rate of the Fund for the six months ended August 31, 2009.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


20


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

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

    Year Ended February 28/29,  
    2009   2008   2007   2006   2005  
Net asset value, beginning of period   $ 14.64     $ 18.39     $ 17.99     $ 17.20     $ 14.80    
Income (loss) from investment operations:  
Net investment income (loss)†      0.33       0.31       0.28       0.26       0.26    
Net realized and unrealized gain (loss)     (7.46 )     (0.35 )     4.52       3.20       3.76    
Total from investment operations     (7.13 )     (0.04 )     4.80       3.46       4.02    
Less distributions to shareholders:  
From net investment income     (0.27 )     (0.42 )     (0.45 )     (0.33 )     (0.38 )  
From net realized gains     (0.81 )     (3.29 )     (3.95 )     (2.34 )     (1.24 )  
Return of capital     (0.01 )     —       —       —       —    
Total distributions     (1.09 )     (3.71 )     (4.40 )     (2.67 )     (1.62 )  
Net asset value, end of period   $ 6.42     $ 14.64     $ 18.39     $ 17.99     $ 17.20    
Total Return(b)      (51.29 )%     (1.91 )%     30.00 %     22.37 %     28.44 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 143,564     $ 666,991     $ 740,872     $ 638,634     $ 567,048    
Net expenses to average daily net assets     0.80 %(d)      0.81 %(d)      0.81 %     0.80 %     0.81 %  
Net investment income to average daily net assets     2.74 %     1.70 %     1.54 %     1.55 %     1.69 %  
Portfolio turnover rate     42 %     42 %     37 %     40 %     25 %  
Fees and expenses reimbursed by the Manager to average daily net assets:     0.11 %     0.09 %     0.09 %     0.09 %     0.09 %  
Purchase premiums and redemption fees consisted of the following
per share amounts:† 		   $ 0.00 (e)      —       —       —       —    

 

See accompanying notes to the financial statements.


21



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Foreign Small Companies Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 Developed ex-U.S. Small Cap Index (formerly S&P/Citigroup EMI World ex-U.S. Index). The Fund typically makes equity investments in companies tied economically to non-U.S. countries that are in the smallest 25% of companies in a particular country as measured by total float-adjusted market capitalization ("small companies"). Under normal circumstances, the Fund invests at least 80% of its assets in securities of small companies that are tied economically to countries outside the U.S. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions. The Fund, however, may hold up to 10% of its total assets in cash and cash equivalents to manage cash inflows and outflows as a result of shareholder purchases and redemptions. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. The Fund typically invests in emerging countries, but these investments (excluding investments in companies from emerging countries included in the Fund's benchmark) generally represent 10% or less of the Fund's total assets. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the-counter derivatives, including, without limitation, futures and options. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

As of August 31, 2009, the Fund had two classes of shares outstanding: Class III and Class IV. Each class of shares bears a different shareholder servicing fee.

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.


22


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 88.09% of the net assets of the Fund were valued using fair value prices base d on models used by a third party vendor and are classified as using Level 2 inputs in the table below.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund's securities in Thailand were valued at the local price and subject to a premium adjustment upon exceeding foreign ownership limitations. The Fund considered certain bankrupt securities to be worthless. The Fund valued Petra Foods at the mid-point between the bid and the asked price.


23


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Common Stocks  
Australia   $ —     $ 7,056,389     $ —     $ 7,056,389    
Austria     —       802,727       —       802,727    
Belgium     —       2,835,703       —       2,835,703    
Brazil     3,984,152       —       —       3,984,152    
Canada     7,187,652       —       828       7,188,480    
China     —       3,969,511       —       3,969,511    
Finland     —       12,650,335       —       12,650,335    
France     —       18,263,077       —       18,263,077    
Germany     —       22,144,709       —       22,144,709    
Greece     —       1,063,663       —       1,063,663    
Hong Kong     2,574,600       7,669,421       —       10,244,021    
India     —       269,843       —       269,843    
Indonesia     —       469,572       —       469,572    
Ireland     —       552,718       —       552,718    
Italy     —       23,334,485       —       23,334,485    
Japan     —       57,426,848       —       57,426,848    
Mexico     2,377,578       —       —       2,377,578    
Netherlands     —       17,585,068       —       17,585,068    
New Zealand     —       1,590,321       —       1,590,321    
Norway     —       6,724,078       —       6,724,078    
Philippines     —       1,788,731       —       1,788,731    
Singapore     —       2,979,915       533,760       3,513,675    
South Korea     —       6,673,234       —       6,673,234    
Spain     —       2,725,535       —       2,725,535    
Sweden     —       5,518,337       —       5,518,337    
Switzerland     —       12,996,053       —       12,996,053    
Taiwan     —       1,520,138       —       1,520,138    
Thailand     —       —       1,103,372       1,103,372    
United Kingdom     —       43,675,340       —       43,675,340    
TOTAL COMMON STOCKS     16,123,982       262,285,751       1,637,960       280,047,693    

 


24


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

ASSET VALUATION INPUTS — continued

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Preferred Stocks  
Germany   $ —     $ 716,564     $ —     $ 716,564    
Italy     —       47,949       —       47,949    
TOTAL PREFERRED STOCKS     —       764,513       —       764,513    
Debt Obligations  
Cyprus     —       51,148       —       51,148    
TOTAL DEBT OBLIGATIONS     —       51,148       —       51,148    
Rights and Warrants  
Italy     —       9,963       —       9,963    
TOTAL RIGHTS AND
WARRANTS		     —       9,963       —       9,963    
Short-Term Investments     9,728,495       —       —       9,728,495    
Total Investments     25,852,477       263,111,375       1,637,960       290,601,812    
Total   $ 25,852,477     $ 263,111,375     $ 1,637,960     $ 290,601,812    

 

The aggregate net value of the Fund's direct investments in securities using Level 3 inputs was 0.55% of total net assets.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Common Stocks  
Australia   $ 165,081     $ —     $ —     $ —     $ 283,081     $ (448,162 )   $ —    
Canada     712       —       —       —       116       —       828    
South Korea     125,060       (169,258 )     —       (87,576 )     131,774       —       —    
Thailand     962,474       (430,400 )     —       (95,154 )     666,452       —       1,103,372    
Singapore     —       (161,965 )     —       (236,181 )     580,798       351,108       533,760    
Total   $ 1,253,327     $ (761,623 )   $ —     $ (418,911 )   $ 1,662,221     $ (97,054 )   $ 1,637,960    

 


25


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some circumstances, futures exchanges may establish daily limits on the


26


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign futures on those exchanges do not reflect events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign futures using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor based on that vendor's proprietary models. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.


27


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and warrants held by the Fund 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 carryforwards 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 certain countries in which it invests. For the period ended August 31, 2009, the Fund paid $13,136 in foreign capital gains tax, which is included in net realized gain (loss) 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


28


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital and currency losses of $81,517,073 and $1,563,263, respectively.

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 267,377,334     $ 54,593,956     $ (31,369,478 )   $ 23,224,478    

 

For the period ended August 31, 2009, the Fund had net realized losses attributed to redemption in-kind transactions of $79,315,452.

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.


29


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

During the six-month period ended August 31, 2009, the premium on cash purchases and fee on cash redemptions of Fund shares were each 0.50% of the amount invested or redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the F und's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are r eceived.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.


30


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Smaller Company Risk — The securities of small companies typically are less widely held, trade less frequently and in lesser quantities, and have market prices that may fluctuate more than those of securities of larger capitalization companies.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Market Risk — Value Securities — The Fund purchases some equity securities at prices below what the Manager believes to be their fundamental value. The Fund bears the risk that the price of these securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. These risks are particularly pronounced for the Fund because it makes equity investments in small companies and may make investments in companies in emerging countries.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security, will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise honor its obligations.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as


31


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected).

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index). The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be


32


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictability of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.


33


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (rights
and warrants)		   $ —     $ —     $ —     $ 9,963     $ —     $ 9,963    
Unrealized appreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 9,963     $ —     $ 9,963    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


34


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (rights and warrants)   $ —     $ —     $ —     $ (111,631 )   $ —     $ (111,631 )  
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ (111,631 )   $ —     $ (111,631 )  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (rights and warrants)   $ —     $ —     $ —     $ 7,999     $ —     $ 7,999    
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 7,999     $ —     $ 7,999    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Rights/Warrants  
Average notional amount outstanding   $ 46,005    
Highest notional amount outstanding     150,340    
Lowest notional amount outstanding     3,399    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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.


35


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.70% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.70% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.70% of the Fund's average daily net assets.

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, 2009 was $9,838 and $1,472, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $97,364,379 and $104,871,245, respectively. Proceeds from sales of securities for in-kind transactions for the period ended August 31, 2009 were $124,666,450.

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 54.61% 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.


36


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, 0.02% 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 each Fund 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, 2009
(Unaudited)		  
Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     307,655     $ 2,487,499       8,133,081     $ 54,843,370    
Shares issued to shareholders
in reinvestment of distributions		     —       —       2,299,029       23,448,063    
Shares repurchased     (8,212,156 )     (80,458,637 )     (4,688,611 )     (60,114,858 )  
Purchase premiums     —       12,500       —       —    
Redemption fees     —       5,067       —       14    
Net increase (decrease)     (7,904,501 )   $ (77,953,571 )     5,743,499     $ 18,176,589    
    Six Months Ended
August 31, 2009
(Unaudited)* 		  
Year Ended
February 28, 2009		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     8,073,696     $ 79,445,169       —     $ —    
Shares issued to shareholders
in reinvestment of distributions		     —       —       3,578,937       39,283,862    
Shares repurchased     (22,361,691 )     (144,101,356 )     (26,775,273 )     (239,231,583 )  
Purchase premiums     —       —       —       —    
Redemption fees     —       32,431       —       27    
Net increase (decrease)     (14,287,995 )   $ (64,623,756 )     (23,196,336 )   $ (199,947,694 )  

 

*  The class was inactive from March 17, 2009 to August 12, 2009.


37


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


38



GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The


39


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


40


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


41


GMO Foreign Small Companies Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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
Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred		  
Class III      
1) Actual     0.86 %   $ 1,000.00     $ 1,602.20     $ 5.64 *   
2) Hypothetical     0.86 %   $ 1,000.00     $ 1,020.87     $ 4.38 *   
Class IV      
1) Actual     0.80 %   $ 1,000.00     $ 1,043.70     $ 0.43 (a)   
2) Hypothetical     0.80 %   $ 1,000.00     $ 1,021.17     $ 4.08 (b)   

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.

(a)  For the period August 12, 2009 (commencement of operations) through August 31, 2009. Expense is calculated using the Class's annualized net expense ratio for the period ended August 31, 2009, multiplied by the average account value over the period, multiplied by 19 days in the period, divided by 365 days in the year.

(b)  For the period March 1, 2009 through August 31, 2009. Expense is calculated using the Class's annualized net expense ratio for the period ended August 31, 2009, 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 Emerging Markets Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     89.4 %  
Preferred Stocks     8.0    
Short-Term Investments     1.2    
Private Equity Securities     0.4    
Debt Obligations     0.4    
Investment Funds     0.3    
Convertible Securities     0.1    
Rights and Warrants     0.0    
Mutual Funds     0.0    
Other     0.2    
      100.0 %  
Country Summary   % of Equity Investments  
South Korea     19.2 %  
Russia     12.7    
Brazil     11.9    
China     10.5    
Taiwan     10.0    
Turkey     9.6    
India     6.1    
Thailand     5.4    
Poland     3.4    
Indonesia     2.4    
South Africa     2.1    
Malaysia     1.7    
Egypt     1.3    
Israel     0.9    
Mexico     0.8    
Philippines     0.6    
Czech Republic     0.4    
Chile     0.3    
Hungary     0.3    
Morocco     0.2    
Argentina     0.1    
United States     0.1    
Lebanon     0.0    
Peru     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, 2009 (Unaudited)

Industry Group Summary   % of Equity Investments  
Banks     19.4 %  
Energy     18.0    
Materials     12.9    
Telecommunication Services     8.8    
Semiconductors & Semiconductor Equipment     6.7    
Capital Goods     6.2    
Technology Hardware & Equipment     4.7    
Software & Services     3.5    
Food, Beverage & Tobacco     3.3    
Automobiles & Components     2.9    
Utilities     2.2    
Diversified Financials     2.2    
Real Estate     1.7    
Retailing     1.2    
Transportation     1.2    
Consumer Durables & Apparel     1.0    
Media     0.9    
Pharmaceuticals, Biotechnology & Life Sciences     0.7    
Food & Staples Retailing     0.6    
Household & Personal Products     0.5    
Consumer Services     0.5    
Health Care Equipment & Services     0.4    
Insurance     0.3    
Miscellaneous     0.2    
      100.0 %  

 


2



GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 89.4%  
        Argentina — 0.1%  
    886,796     Petrobras Energia Participaciones SA Sponsored ADR *      5,879,457    
    124,800     Telecom Argentina SA Sponsored ADR *      1,850,784    
    Total Argentina     7,730,241    
        Brazil — 5.0%  
    3,341,400     Banco do Brasil SA     46,379,277    
    6,136,900     BM&F BOVESPA SA     37,836,673    
    1,011,000     BRF-Brasil Foods SA *      22,529,846    
    640,400     Cia de Saneamento de Minas Gerais-Copasa MG *      10,231,041    
    3,926,300     Companhia Brasileira de Meios de Pagamento     34,248,619    
    1,165,102     Companhia Saneamento Basico Sao Paulo     21,451,180    
    334,392     Electrobras (Centro)     4,888,046    
    1,576,400     Gerdau SA     14,260,954    
    319,763     Itau Unibanco Holding SA ADR     5,356,030    
    300,200     MRV Engenharia e Participacoes SA     5,437,909    
    1,861,500     Natura Cosmeticos SA     30,114,679    
    1,357,100     Petroleo Brasileiro SA (Petrobras)     27,023,910    
    1,507,490     Petroleo Brasileiro SA (Petrobras) ADR     59,756,904    
    1,575,900     Redecard SA     21,572,781    
    359,004     Souza Cruz SA     11,398,525    
    443,000     Tele Norte Leste Participacoes SA     8,299,639    
    391,350     Usinas Siderurgicas de Minas Gerais SA     9,227,778    
    3,770,200     Vale SA     73,375,570    
    337,120     Vale SA Sponsored ADR     6,476,075    
    Total Brazil     449,865,436    
        Chile — 0.3%  
    110,480     AFP Provida SA Sponsored ADR *      3,604,962    
    69,130     Banco Santander Chile SA ADR     3,537,382    
    201,788     Compania Cervecerias Unidas ADR     6,566,182    
    1,416     Embotelladora Andina SA ADR A Shares     20,560    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Chile — continued  
    174,340     Embotelladora Andina SA ADR B Shares     2,988,188    
    822,567     Lan Airlines SA Sponsored ADR     9,747,419    
    Total Chile     26,464,693    
        China — 10.2%  
    9,897,990     Advanced Semiconductor Manufacturing Co Class H *      357,705    
    14,764,000     Air China Ltd Class H *      8,698,733    
    181,778,000     Bank of China Ltd Class H     88,412,882    
    3,764,000     C C Land Holdings Ltd     1,914,229    
    13,644,000     China Agri-Industries Holdings Ltd     9,577,472    
    22,196,000     China Coal Energy Co Class H     28,279,132    
    20,600,000     China Communication Services Corp Ltd Class H     11,532,744    
    70,436,000     China Construction Bank Class H     53,082,359    
    12,575,400     China Merchants Bank Co Ltd Class H     27,415,143    
    10,393,942     China Mobile Ltd     102,066,101    
    6,978,000     China National Building Material Co Ltd Class H     14,696,437    
    26,728,000     China Oilfield Services Ltd Class H     23,235,822    
    41,881,351     China Petroleum & Chemical Corp Class H     35,086,121    
    6,688,000     China Resources Land Ltd     14,033,168    
    84,736,000     China Telecom Corp Ltd Class H     43,683,770    
    29,366,000     China Ting Group Holding Ltd     4,542,880    
    4,257,500     China Vanke Co Ltd Class B     4,943,588    
    6,938,000     China Zhongwang Holdings Ltd *      7,573,171    
    10,932,271     Cosco Pacific Ltd     16,356,524    
    27,426,000     Denway Motors Ltd     12,387,637    
    32,082,000     Dongfeng Motor Group Co Ltd     33,309,808    
    8,340,000     Guangdong Investments Ltd     4,252,918    
    594,000     Hengan International Group Co Ltd     3,296,731    
    16,574,000     Huaneng Power International Inc Class H     11,570,666    
    121,654,000     Industrial and Commercial Bank of China Ltd Class H     83,051,660    
    7,148,500     Kingboard Chemical Holdings Ltd     22,702,141    
    2,543,600     Lee & Man Paper Manufacturing Ltd     4,130,278    
    28,987,000     Maoye International Holdings     7,029,699    
    16,254,000     Parkson Retail Group Ltd     24,026,673    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        China — continued  
    6,356,172     Peace Mark Holdings Ltd * (a) (b)      —    
    662,930     Perfect World Co Ltd ADR *      25,290,780    
    27,457,101     PetroChina Co Ltd Class H     30,313,653    
    38,268,789     Pico Far East Holdings Ltd     5,685,819    
    447,738     Shanda Interactive Entertainment Ltd Sponsored ADR *      21,921,252    
    3,153,500     Shandong Chenming Paper Holdings Ltd Class H     2,189,837    
    706,000     Shandong Weigao Group Medical Polymer Co Ltd Class H     1,914,249    
    27,218,000     Shenzhen Investment Ltd     9,765,796    
    5,862,000     Shimao Property Holdings Ltd     8,706,114    
    21,868,000     Sino-Ocean Land Holdings Ltd     19,935,303    
    4,994,000     Techtronic Industries Co Ltd     4,906,765    
    2,166,000     Tencent Holdings Ltd     32,317,156    
    2,506,000     Tingyi (Cayman Islands) Holding Corp     4,509,620    
    504,040     VisionChina Media Inc ADR *      2,842,786    
    3,523,200     Wilmar International Ltd     16,002,208    
    10,824,000     Zhejiang Expressway Co Ltd Class H     10,324,987    
    3,608,000     Zhuzhou CSR Times Electric Co Ltd Class H     6,136,055    
    25,430,000     Zijin Mining Group Co Ltd Class H     21,355,940    
    Total China     925,364,512    
        Czech Republic — 0.4%  
    206,820     CEZ AS     10,823,074    
    32,500     Komercni Banka AS     6,223,666    
    144,830     Pegas Nonwovens SA     3,680,458    
    6,810     Philip Morris CR AS     3,186,099    
    188,460     Telefonica 02 Czech Republic AS     5,233,857    
    425,670     Unipetrol AS *      3,153,057    
    Total Czech Republic     32,300,211    
        Egypt — 1.3%  
    528,477     Alexandria Mineral Oils Co     4,690,986    
    3,398,335     Commercial International Bank     33,263,963    
    1,060,200     EFG-Hermes Holding SAE     5,390,197    
    453,661     Egyptian Co for Mobile Services     17,768,868    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Egypt — continued  
    21,032     El Ezz Aldekhela Steel Alexa Co     2,918,680    
    248,230     Orascom Construction Industries     10,442,098    
    2,770,909     Orascom Telecom Holding SAE     18,103,406    
    2,356,570     Sidi Kerir Petrochemicals Co     4,903,303    
    4,301,300     Talaat Moustafa Group *      4,895,093    
    5,199,559     Telecom Egypt     17,403,988    
    Total Egypt     119,780,582    
        Hungary — 0.3%  
    13,590     Egis Gyogyszergyar Nyrt     1,426,551    
    30,660     MOL Hungarian Oil and Gas Nyrt *      2,410,901    
    725,550     OTP Bank Nyrt *      18,745,675    
    25,950     Richter Gedeon Nyrt     5,208,019    
    Total Hungary     27,791,146    
        India — 5.8%  
    167,800     Aban Offshore Ltd     5,577,160    
    37,800     Adani Enterprises Ltd     553,603    
    514,900     Axis Bank Ltd     9,537,300    
    128,200     Bajaj Auto Ltd     3,197,628    
    1,875,137     Bank of Baroda     16,626,419    
    375,100     Bharat Heavy Electricals Ltd     17,743,076    
    1,616,400     Canara Bank Ltd     8,851,541    
    11,896,352     CBAY Systems Holdings Ltd * (c)      11,329,499    
    178,128     Century Textiles & Industries Ltd     1,677,723    
    1,203,043     Cipla Ltd     6,685,003    
    209,189     Grasim Industries Ltd     11,479,150    
    3,995,600     GVK Power & Infrastructure Ltd *      3,948,722    
    205,242     Hero Honda Motors Ltd     6,370,561    
    729,500     Housing Development Finance Corp Ltd     36,896,486    
    665,385     ICICI Bank Ltd     10,243,083    
    485,060     ICICI Bank Ltd Sponsored ADR     14,804,031    
    5,896,010     IFCI Ltd *      6,759,602    
    883,300     India Infoline Ltd     2,455,043    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        India — continued  
    7,799,500     Industrial Development Bank of India Ltd     16,555,133    
    1,045,250     Infosys Technologies Ltd     45,633,322    
    737,100     Infosys Technologies Ltd Sponsored ADR     31,864,833    
    928,147     Jindal Steel & Power Ltd     59,460,105    
    793,246     KSK Energy Ventures Ltd *      3,375,467    
    343,900     Larsen & Toubro Ltd     11,019,474    
    418,386     Mahindra & Mahindra Ltd     7,413,537    
    539,400     Nagarjuna Construction Co     1,497,575    
    741,250     Punjab National Bank Ltd     10,377,849    
    2,469,600     Reliance Communications Ltd     13,166,671    
    765,380     Reliance Energy Ltd     17,923,139    
    380,900     Reliance Industries Ltd *      15,602,374    
    2,249,189     Satyam Computer Services Ltd     5,610,160    
    1,620,100     Sesa Goa Ltd     7,032,226    
    637,500     State Bank of India     22,799,771    
    1,003,800     Sterlite Industries India Ltd     13,811,816    
    454,910     Sterlite Industries India Ltd ADR     6,091,245    
    2,395,000     Tata Consultancy Services Ltd     26,040,420    
    354,000     Tata Steel Ltd     3,077,116    
    1,231,301     Union Bank of India     5,397,928    
    1,691,580     Unitech Ltd     3,658,385    
    109,100     United Spirits Ltd     2,129,949    
    1,843,200     Wipro Ltd     20,795,319    
    Total India     525,069,444    
        Indonesia — 2.4%  
    8,920,000     Astra International Tbk PT     26,692,022    
    52,550,500     Bakrie Sumatera Plantations Tbk PT     4,590,281    
    16,729,500     Bank Central Asia Tbk PT     7,045,551    
    4,889,000     Bank Danamon Indonesia Tbk PT     2,279,798    
    45,365,000     Bank Negara Indonesia (Persero) Tbk PT     8,726,841    
    26,559,500     Bank Rakyat Tbk PT     20,033,326    
    310,072,500     Bumi Resources Tbk PT     88,976,640    
    3,921,500     Gudang Garam Tbk PT     5,567,954    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Indonesia — continued  
    42,280,000     Indah Kiat Pulp and Paper Corp Tbk PT *      7,422,196    
    1,706,000     Indo Tambangraya Megah PT     4,131,382    
    17,069,500     Indofood Sukses Makmur Tbk PT     4,233,312    
    10,805,000     International Nickel Indonesia Tbk PT *      4,530,428    
    44,724,500     Kalbe Farma Tbk PT     5,642,696    
    16,121,100     Matahari Putra Prima Tbk PT *      1,392,717    
    33,243,500     Perusahaan Gas Negara PT     11,469,092    
    3,332,000     Tambang Batubara Bukit Asam Tbk PT     4,298,001    
    7,510,500     Telekomunikasi Indonesia Tbk PT     6,218,126    
    20,775,500     Timah Tbk PT     4,276,110    
    Total Indonesia     217,526,473    
        Israel — 0.8%  
    4,816,630     Bank Hapoalim BM *      15,491,921    
    3,317,230     Bezeq Israeli Telecommunication Corp Ltd     6,931,666    
    51,085     Delek Group Ltd     8,523,238    
    76,450     Elbit Systems Ltd     4,970,566    
    879,128     Jerusalem Economy Ltd *      6,652,099    
    322,530     Mizrahi Tefahot Bank Ltd *      2,452,984    
    637,416     Phoenix Holdings Ltd (The) *      1,599,321    
    574,730     Teva Pharmaceutical Industries Ltd Sponsored ADR     29,598,595    
    Total Israel     76,220,390    
        Lebanon — 0.0%  
    8,700     Banque Libanaise pour le Commerce Sal * (a) (b)      —    
        Malaysia — 1.6%  
    6,578,592     Berjaya Sports Toto Berhad     7,991,169    
    646,478     British American Tobacco Malaysia Berhad     8,416,038    
    6,011,600     CIMB Group Holdings Berhad     16,905,100    
    4,818,700     IOI Corp Berhad     6,949,158    
    45,417,200     KNM Group Berhad     9,583,358    
    4,255,306     Lion Diversified Holdings     659,266    
    4,758,303     Lion Industries Corp Berhad     2,090,828    
    1,064,000     PPB Group Berhad     4,637,422    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Malaysia — continued  
    21,520,841     Resorts World Berhad     16,979,855    
    17,080,480     RHB Capital Berhad     22,857,077    
    8,522,400     Shangri-La Hotels Berhad     4,222,076    
    9,424,680     Sime Darby Berhad     21,993,280    
    11,622,265     Sunway City Berhad     11,142,500    
    2,516,178     Tanjong Plc     10,929,398    
    3,735,321     WCT Engineering Berhad     2,838,099    
    Total Malaysia     148,194,624    
        Mexico — 0.7%  
    2,591,500     Alfa SA de CV Class A     11,323,288    
    429,900     America Movil SAB de CV Class L ADR     19,409,985    
    4,191,847     Cemex SA de CV CPO *      5,549,683    
    4,601,200     Consorcio ARA SAB de CV *      2,670,259    
    2,752,000     Corporacion GEO SA de CV Series B *      6,501,720    
    4,282,850     Grupo Financiero Banorte SAB de CV Class O     12,632,792    
    29,720     Grupo Mexico SA Class B *      42,730    
    1,475,200     Sare Holding SA de CV Class B *      585,474    
    490,080     Telefonos de Mexico SAB de CV Class L Sponsored ADR     9,110,587    
    Total Mexico     67,826,518    
        Morocco — 0.2%  
    76,980     Attijariwafa Bank     2,692,263    
    1,695     Compagnie Generale Immobiliere     408,304    
    28,840     Credit Immobilier et Hotelier     1,467,140    
    77,150     Douja Promotion Groupe Addoha SA     1,306,403    
    435,915     Maroc Telecom     7,839,873    
    5,420     Societe Nationale De Siderurgie     1,551,920    
    Total Morocco     15,265,903    
        Peru — 0.0%  
    9,268     Sociedad Minera Cerro Verde SA     217,334    
    2,111,957     Volcan Compania Minera SA Class B *      1,987,220    
    Total Peru     2,204,554    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Philippines — 0.6%  
    71,804,100     Benpres Holdings Corp *      5,417,689    
    22,788,800     Energy Development Corp     2,094,875    
    168,711,042     Filinvest Land Inc     3,584,772    
    6,310,500     First Gen Corp *      2,771,183    
    924,600     Manila Electric Co     3,793,463    
    212,997,487     Megaworld Corp     7,024,827    
    103,996     Philippine Long Distance Telephone Co     5,343,218    
    115,496,710     Robinsons Land Corp     26,029,455    
    Total Philippines     56,059,482    
        Poland — 2.7%  
    54,396     Central European Distribution Corp. *      1,751,551    
    1,326,083     Cyfrowy Polsat SA     7,324,961    
    3,940,740     Getin Holding SA *      12,249,099    
    1,855,240     Globe Trade Centre SA *      16,584,473    
    2,952,150     KGHM Polska Miedz SA     88,655,454    
    3,345,450     Polski Koncern Naftowy Orlen SA *      34,260,213    
    4,850,320     Powszechna Kasa Oszczednosci Bank Polski SA     59,856,933    
    1,979,950     Telekomunikacja Polska SA     11,163,068    
    2,367,840     TVN SA     11,857,356    
    Total Poland     243,703,108    
        Russia — 12.1%  
    3,393,304     Cherepovets MK Severstal GDR (Registered Shares)     24,877,764    
    1,845,420     Gazprom Neft Class S     6,660,942    
    363,300     Gazprom Neft Sponsored ADR     6,462,630    
    2,955,790     Lukoil Sponsored ADR     148,201,277    
    2,794,032     Magnit OJSC Sponsored GDR (Registered Shares)     31,855,784    
    1,266,300     Magnitogorsk Iron & Steel Works Sponsored GDR (Registered Shares) *      11,033,811    
    1,077,980     Mechel Sponsored ADR     13,162,136    
    4,292,500     MMC Norilsk Nickel JSC ADR *      47,214,036    
    2,551,060     Mobile Telesystems Sponsored ADR     110,664,983    
    1,178,300     NovaTek OAO Sponsored GDR (Registered Shares)     46,477,784    
    872,968     Novolipetsk Steel GDR (Registered Shares) *      20,753,788    
    17,234,000     OAO Gazprom Sponsored GDR     361,658,489    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Russia — continued  
    1,060,383     OAO Tatneft Sponsored GDR (Registered Shares)     26,281,776    
    258,818     Polyus Gold Sponsored ADR     5,194,723    
    8,894,600     Rosneft OJSC GDR     56,769,793    
    193,200     Rostelecom Sponsored ADR     5,838,504    
    447,595,760     RusHydro Class S *      15,665,852    
    135,000     Russia Petroleum * (a)      1,796,113    
    11,994,560     Sberbank RF     17,900,729    
    703,011     Sistema JSFC Sponsored GDR *      11,177,410    
    10,627,956     Surgutneftegaz Sponsored ADR     90,604,685    
    926,310     Vimpelcom Sponsored ADR *      14,302,227    
    1,152,947     X5 Retail Group NV GDR (Registered Shares) *      22,145,957    
    Total Russia     1,096,701,193    
        South Africa — 2.1%  
    167,175     Absa Group Ltd     2,723,066    
    1,045,846     Adcock Ingram Holdings Ltd     6,241,645    
    1,619,632     Aveng Ltd     8,578,475    
    312,500     Exxaro Resources Ltd     3,709,373    
    3,421,200     FirstRand Ltd     6,985,607    
    806,800     Foschini Ltd     6,321,652    
    832,300     Gold Fields Ltd     10,065,625    
    2,039,216     Grindrod Ltd     4,481,013    
    981,940     Harmony Gold Mining Co Ltd *      9,204,896    
    1,043,800     Impala Platinum Holdings Ltd     24,398,537    
    1,516,053     JD Group Ltd     8,280,683    
    704,488     Naspers Ltd Class N     23,051,673    
    1,603,888     Remgro Ltd     17,735,021    
    640,838     Reunert Ltd     4,193,140    
    2,104,000     RMB Holdings Ltd     7,142,560    
    2,498,400     Steinhoff International Holdings Ltd     5,589,412    
    3,149,600     Telkom South Africa Ltd     17,567,191    
    800,332     Tiger Brands Ltd     15,984,004    
    626,022     Vodacom Group (Pty) Ltd *      4,635,114    
    Total South Africa     186,888,687    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        South Korea — 18.1%  
    14,290     Amorepacific Corp     8,326,134    
    152,986     Boryung Pharmaceutical Co Ltd (c)      5,168,637    
    1,378,940     Busan Bank     12,392,476    
    47,730     CJ O Shopping Co Ltd     2,867,134    
    1,011,620     Daegu Bank     11,762,156    
    1,406,852     Daehan Pulp Co Ltd * (c)      5,843,763    
    517,926     Daelim Industrial Co Ltd     29,834,913    
    14,046     Daesun Shipbuilding *      853,314    
    727,240     Daewoo Engineering & Construction Co Ltd     8,137,373    
    876,140     Daewoo Securities Co Ltd     16,060,848    
    801,463     Dongbu Insurance Co Ltd     24,318,766    
    322,873     Dongkuk Steel Mill Co Ltd     7,534,509    
    147,110     Doosan Infracore Co Ltd     2,067,244    
    4,336,899     Edu Ark Co Ltd * (a) (c)      648,727    
    1,380,098     Finetex EnE Inc *      2,789,194    
    351,220     GS Engineering & Construction Corp     26,867,146    
    646,520     GS Holdings Corp     17,056,751    
    1,202,899     Hana Financial Group Inc     31,455,330    
    230,982     Hanjin Heavy Industries & Construction Co Ltd     5,094,435    
    278,974     Hanjin Heavy Industries & Construction Holdings Co Ltd     3,265,812    
    2,112,770     Hanwha Chemical Corp     21,938,736    
    315,520     Hanwha Corp     11,036,352    
    39,775     Hite Brewery Co Ltd     5,203,754    
    362,684     Honam Petrochemical Corp     27,192,346    
    24,300     Hyosung Corp     1,753,563    
    247,260     Hyundai Department Store Co Ltd     18,901,420    
    750,920     Hyundai Development Co     27,372,472    
    144,830     Hyundai Heavy Industries Co Ltd     22,051,763    
    235,887     Hyundai Mipo Dockyard     23,292,456    
    936,024     Hyundai Mobis     99,171,066    
    664,440     Hyundai Motor Co     56,317,640    
    2,946,629     In the F Co Ltd * (c)      3,417,453    
    2,405,390     Industrial Bank of Korea *      25,946,563    
    1,342,390     Kangwon Land Inc     17,715,598    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued  
    1,473,238     KB Financial Group Inc *      60,488,423    
    42,331     KB Financial Group Inc ADR *      1,725,835    
    502,901     Keangnam Enterprises Ltd *      6,784,840    
    1,320,080     Korea Exchange Bank     11,759,301    
    607,790     Korea Investment Holdings Co Ltd     17,383,648    
    216,529     Korea Zinc Co Ltd     23,618,196    
    61,000     Korean Air Lines Co Ltd *      2,039,261    
    720,629     KT Corp     22,448,760    
    221,850     KT Corp Sponsored ADR     3,454,204    
    1,360,111     KT&G Corp     73,251,310    
    256,820     LG Chem Ltd     38,695,907    
    430,850     LG Corp     26,201,815    
    794,320     LG Display Co Ltd     23,193,789    
    116,540     LG Fashion Corp     2,036,100    
    14,660     LG Household & Health Care Ltd     2,538,941    
    1,857,730     LG Telecom Ltd     11,595,019    
    131,420     Lotte Shopping Co Ltd     29,899,058    
    496,757     Maeil Dairy Industry     6,255,613    
    131,610     Mirae Asset Securities Co Ltd     7,681,044    
    153,100     NCSoft Corp     16,772,202    
    228,740     NHN Corp *      31,096,939    
    231,659     POSCO     85,007,158    
    726,680     Pumyang Construction Co Ltd (c)      5,228,091    
    406,701     Samsung Electronics Co Ltd     250,790,471    
    288,310     Samsung Engineering Co Ltd     18,703,688    
    303,090     Samsung Techwin Co Ltd     18,855,684    
    343,890     Seoul Semiconductor Co Ltd *      12,152,756    
    1,719,822     Shinhan Financial Group Co Ltd *      56,181,375    
    6,300     Shinsegae Co Ltd     2,609,824    
    113,710     SK Chemicals Co Ltd     5,515,957    
    327,623     SK Energy Co Ltd     26,317,388    
    684,694     SK Holdings Co Ltd     57,472,441    
    1,234,800     SK Networks Co Ltd     12,141,722    
    2,391,790     SK Securities Co Ltd     5,596,469    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued  
    299,885     SK Telecom Co Ltd     41,913,944    
    295,170     STX Engine Co Ltd     5,675,270    
    811,290     STX Pan Ocean Co Ltd     7,195,365    
    133,880     STX Shipping Co Ltd     1,589,971    
    1,222,670     Tong Yang Securities Inc     15,867,847    
    619,980     Woori Finance Holdings Co Ltd *      6,955,948    
    724,536     Youngone Corp *      4,513,484    
    4     Youngone Holding Co Ltd     71    
    Total South Korea     1,642,860,973    
        Sri Lanka — 0.0%  
    262,774     Lanka Walltile Ltd     97,386    
        Taiwan — 9.9%  
    3,402,510     Asia Optical Co Inc     5,110,415    
    11,722,946     Asustek Computer Inc     18,622,110    
    24,339,930     AU Optronics Corp     24,240,813    
    3,389,000     Catcher Technology Co Ltd     8,737,870    
    23,713,000     Chi Mei Optoelectronics Corp *      11,612,595    
    30,998,000     China Bills Finance Corp     8,556,087    
    32,476,350     China Steel Corp     29,453,853    
    64,179,000     Chinatrust Financial Holding Co Ltd     35,628,319    
    16,192,771     Chunghwa Telecom Co Ltd     27,727,070    
    17,203,817     Compal Electronics Inc     17,320,512    
    2,201,656     DFI Inc     2,562,882    
    11,882,502     Dimerco Express Taiwan Corp (c)      7,865,272    
    5,039,000     Epistar Corp     14,777,156    
    10,864,473     Far Eastern Textile Co Ltd     10,805,108    
    12,305,500     Far Eastone Telecommunications Co Ltd     13,876,503    
    18,241,650     First Financial Holding Co Ltd     9,869,152    
    11,047,864     Formosa Chemicals & Fibre Co     19,333,943    
    20,632,780     Formosa Plastics Corp     37,059,444    
    72,814,000     HannStar Display Corp *      15,232,406    
    3,980,430     High Tech Computer Corp     39,952,557    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued  
    25,630,014     Hon Hai Precision Industry Co Ltd     86,294,177    
    9,717,040     Innolux Display Corp     10,857,421    
    3,584,896     Les Enphants Co Ltd     2,858,789    
    20,793,426     Lite-On Technology Corp     23,267,560    
    17,642,228     Macronix International Co Ltd     8,377,407    
    8,053,389     MediaTek Inc     116,736,381    
    13,201,000     Mitac International Corp     5,364,062    
    14,346,697     Nan Ya Plastics Corp     19,956,069    
    5,862,658     Novatek Microelectronics Corp Ltd     13,738,123    
    11,277,500     Powertech Technology Inc     30,756,984    
    21,235,290     Quanta Computer Inc     43,948,650    
    2,452,970     Radiant Opto-Electronics Corp     3,121,506    
    16,057,652     Siliconware Precision Industries Co     19,903,990    
    1,378,120     Silitech Technology Corp     3,180,900    
    5,651,000     Sincere Navigation Corp     6,427,257    
    17,586,400     Synnex Technology International Corp     30,672,514    
    20,277,000     Taishin Financial Holding Co Ltd *      6,703,502    
    663     Taiwan Cement Corp     718    
    7,518,288     Taiwan Mobile Co Ltd     11,796,921    
    36,967,697     Taiwan Semiconductor Manufacturing Co Ltd     66,424,611    
    14,897,667     Wistron Corp     28,832,285    
    Total Taiwan     897,563,894    
        Thailand — 5.3%  
    17,805,590     Advanced Info Service Pcl (Foreign Registered) (a)      45,150,412    
    18,091,000     Asian Property Development Pcl (Foreign Registered) (a)      2,978,818    
    2,307,720     Asian Property Development Pcl NVDR (a)      379,943    
    1,979,000     Bangkok Bank Pcl (a)      6,399,064    
    6,593,010     Bangkok Bank Pcl NVDR (a)      21,318,391    
    29,175,800     Bangkok Dusit Medical Service Pcl (Foreign Registered) (a)      21,284,922    
    16,673,450     Bank of Ayudhya Pcl NVDR (a)      8,720,386    
    1,707,170     Banpu Pcl (Foreign Registered) (a)      20,032,523    
    479,630     Banpu Pcl NVDR (a)      5,628,144    
    30,289,820     BEC World Pcl (Foreign Registered) (a)      16,658,511    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Thailand — continued  
    17,754,880     Home Product Center Pcl (Foreign Registered) (a)      3,656,943    
    153,686,800     IRPC Pcl (Foreign Registered) (a)      17,361,448    
    14,867,460     Kasikornbank Pcl (Foreign Registered) (a)      32,976,825    
    3,330,540     Kasikornbank Pcl NVDR (a)      7,093,781    
    83,094,000     Krung Thai Bank Pcl (Foreign Registered) (a)      21,006,190    
    6,828,000     PTT Chemical Pcl (Foreign Registered) (a)      13,260,608    
    6,388,140     PTT Exploration & Production Pcl (Foreign Registered) (a)      26,026,279    
    847,860     PTT Exploration & Production Pcl NVDR (a)      3,454,314    
    14,075,270     PTT Pcl (Foreign Registered) (a)      101,001,525    
    15,394,870     Robinson Department Store Pcl (Foreign Registered) (a)      4,614,331    
    3,410,793     Robinson Department Store Pcl NVDR (a)      1,022,323    
    12,901,400     Saha Pathana International Holding Pcl (Foreign Registered) (a)      6,255,800    
    3,699,138     Siam Cement Pcl (Foreign Registered) (a)      21,484,407    
    1,438,990     Siam Cement Pcl NVDR (a)      8,209,472    
    14,104,000     Siam Commercial Bank Pcl (Foreign Registered) (a)      31,915,888    
    785,080     Siam Commercial Bank Pcl NVDR (a)      1,776,555    
    3,108,050     Star Block Co Ltd (Foreign Registered) * (a) (b) (c)      —    
    20,710,320     Thai Oil Pcl (Foreign Registered) (a)      24,659,403    
    10,230,000     Thoresen Thai Agencies Pcl (Foreign Registered) (a)      6,948,339    
    Total Thailand     481,275,545    
        Turkey — 9.5%  
    10,635,505     Akbank TAS     61,126,340    
    2,758,340     Anadolu Efes Biracilik ve Malt Sanayii AS     30,131,239    
    4,673,750     Arcelik AS *      13,412,204    
    13,521,600     Asya Katilim Bankasi AS *      25,044,480    
    13,260,774     Dogan Sirketler Grubu Holdings AS *      12,442,338    
    3,316,531     Enka Insaat ve Sanayi AS     13,386,095    
    1,063,900     Ford Otomotiv Sanayi AS     6,320,940    
    1,731,600     Gubre Fabrikalari TAS *      9,356,977    
    6,865,531     Haci Omer Sabanci Holding AS     26,570,246    
    28,413,000     Kardemir Karabuk Demir Celik Sanayi ve Ticaret AS Class D *      11,767,293    
    24,192,519     KOC Holding AS *      64,290,898    
    42,150     Medya Holding AS * (a) (b)      —    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Turkey — continued  
    6,781,550     Sekerbank TAS *      11,012,883    
    2,087,320     Tupras-Turkiye Petrol Rafineriler AS     31,308,787    
    8,900,850     Turk Ekonomi Bankasi AS *      10,832,283    
    14,269,900     Turk Hava Yollari Anonim Ortakligi     27,430,551    
    8,896,919     Turk Sise ve Cam Fabrikalari AS *      9,434,393    
    7,657,770     Turk Telekomunikasyon AS     23,384,878    
    12,193,985     Turkcell Iletisim Hizmet AS     78,930,508    
    50,324,240     Turkiye Garanti Bankasi *      186,260,891    
    8,095,200     Turkiye Halk Bankasi AS     43,759,642    
    14,639,660     Turkiye IS Bankasi Class C     58,075,134    
    12,737,874     Turkiye Sinai Kalkinma Bankasi AS *      10,612,234    
    21,274,760     Turkiye Vakiflar Bankasi TAO Class D *      47,095,179    
    6,285,900     Vestel Elektronik Sanayi AS *      9,686,312    
    17,038,433     Yapi ve Kredi Bankasi AS *      35,932,478    
    Total Turkey     857,605,203    
    TOTAL COMMON STOCKS (COST $6,915,762,914)     8,104,360,198    
        PREFERRED STOCKS — 8.0%  
        Brazil — 6.8%  
    4,729,600     Banco Bradesco SA 0.57%     77,166,233    
    1,007,600     Centrais Eletricas Brasileiras SA Class B 6.90%     13,231,867    
    561,206     Companhia de Bebidas das Americas 1.04%     41,985,486    
    1,289,955     Companhia Energetica de Minas Gerais 2.79%     18,993,077    
    1,168,000     Companhia Paranaense de Energia Class B 0.45%     18,176,601    
    2,072,000     Duratex SA 1.25%     31,629,140    
    588,000     Eletropaulo Metropolitana SA 5.67%     10,910,150    
    1,292,900     Fertilizantes Fosfatados SA *      12,107,861    
    1,168,800     Gerdau Metalurgica SA 1.48%     17,128,591    
    1,384,362     Gerdau SA 0.74%     16,203,654    
    238,672     Itau Unibanco Holding SA 0.42%     4,049,839    
    5,472,471     Itausa-Investimentos Itau SA 0.59%     28,107,136    
    859,865     Net Servicos de Comunicacoa SA *      9,047,128    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Brazil — continued  
    6,887,604     Petroleo Brasileiro SA (Petrobras) 1.11%     114,677,675    
    1,143,520     Petroleo Brasileiro SA Sponsored ADR 1.14%     37,964,864    
    1,466,530     Tele Norte Leste Participacoes ADR 6.99%     23,376,488    
    280,500     Telecomunicacoes de Sao Paulo SA 4.48%     6,472,619    
    176,200     Telemar Norte Leste SA Class A 7.14%     4,833,416    
    1,230,800     Usinas Siderrurgicas de Minas Gerais SA Class A 1.14%     28,930,037    
    4,957,308     Vale SA Preference A 2.87%     86,536,549    
    834,240     Vale SA Sponsored ADR 2.83%     14,357,270    
    Total Brazil     615,885,681    
        Russia — 0.4%  
    50,615     Transneft 1.20%     32,542,436    
        South Korea — 0.8%  
    314,460     Hyundai Motor Co 1.98%     11,003,412    
    164,939     Samsung Electronics Co Ltd (Non Voting) 1.15%     64,850,464    
    Total South Korea     75,853,876    
    TOTAL PREFERRED STOCKS (COST $513,030,669)     724,281,993    
        PRIVATE EQUITY SECURITIES — 0.4%  
        Poland — 0.4%  
    11,558,754     TRI Media Equity Linked Note * (a) (d)      30,937,658    
        Russia — 0.0%  
    46,624     Divot Holdings NV, Convertible Securities-Class F * (a) (d) (e)      466    
    90,000     Divot Holdings NV, Private Equity Securities-Class D * (a) (d) (e)      900    
    124,330     Divot Holdings NV, Private Equity Securities-Class E * (a) (d) (e)      1,244    
    Total Russia     2,610    
        Sri Lanka — 0.0%  
    2,545,869     Millenium Information Technology * (a) (c) (d)      3,014,309    
    TOTAL PRIVATE EQUITY SECURITIES (COST $31,161,139)     33,954,577    

 

See accompanying notes to the financial statements.


18


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        INVESTMENT FUNDS — 0.3%  
        China — 0.1%  
    250,446     Martin Currie China A Share Fund Ltd Class B * (a) (d)      8,508,896    
    25,045     Martin Currie China A Share Fund Ltd Class S * (a) (d)      1,511,015    
    Total China     10,019,911    
        India — 0.1%  
    11,514     Fire Capital Mauritius Private Fund * (a) (d) (f)      9,037,232    
    170     SPG Infinity Technology Fund I * (a) (d) (e)      5,582    
    1,371,900     TDA India Technology Fund II LP * (a) (d)      1,096,025    
    Total India     10,138,839    
        Poland — 0.0%  
    1,749,150     The Emerging European Fund II LP * (a) (d)      298,031    
        Russia — 0.1%  
    9,500,000     NCH Eagle Fund LP * (a) (d)      6,841,900    
    2,769     Steep Rock Russia Fund LP * (a) (d)      955,211    
    Total Russia     7,797,111    
        Ukraine — 0.0%  
    16,667     Societe Generale Thalmann Ukraine Fund * (a) (d) (e)      4,000    
    TOTAL INVESTMENT FUNDS (COST $27,535,138)     28,257,892    
        DEBT OBLIGATIONS — 0.4%  
        Poland — 0.3%  
PLZ     100,677,888     TRI Media Secured Term Note, 4.65%, due 02/07/13* (a) (d)      26,407,332    
        United States — 0.1%  
    9,478,429     U.S. Treasury Inflation Indexed Bonds, 0.88% , due 04/15/10 (g)      9,460,657    
    TOTAL DEBT OBLIGATIONS (COST $38,783,636)     35,867,989    

 

See accompanying notes to the financial statements.


19


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        RIGHTS AND WARRANTS — 0.0%  
        Malaysia — 0.0%  
    4,851,866     Sunway City Warrants, Expires 10/04/17 *      647,559    
    3,740,700     WCT Engineering Warrants, Expires 04/22/13 *      669,215    
    Total Malaysia     1,316,774    
    TOTAL RIGHTS AND WARRANTS (COST $1,233,958)     1,316,774    
        MUTUAL FUNDS — 0.0%  
        United States — 0.0%  
        Affiliated Issuers  
    8,064     GMO Special Purpose Holding Fund (h)      5,645    
    TOTAL MUTUAL FUNDS (COST $0)     5,645    
        CONVERTIBLE SECURITIES — 0.1%  
        India — 0.1%  
    3,380,000     Adani Enterprises Ltd, 6.00%, 01/27/12     3,464,500    
    4,000,000     Housing Development Finance Corp, Zero Coupon, 09/27/10     6,435,480    
    Total India     9,899,980    
    TOTAL CONVERTIBLE SECURITIES (COST $8,254,679)     9,899,980    

 

See accompanying notes to the financial statements.


20


GMO Emerging Markets Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 1.2%  
    50,100,000     BNP Paribas Time Deposit, 0.18%, due 09/01/09     50,100,000    
    65,000,000     Commerzbank Time Deposit, 0.15%, due 09/01/09     65,000,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $115,100,000)     115,100,000    
        TOTAL INVESTMENTS — 99.8%
(Cost $7,650,862,133)		     9,053,045,048    
        Other Assets and Liabilities (net) — 0.2%     14,176,875    
    TOTAL NET ASSETS — 100.0%   $ 9,067,221,923    

 

See accompanying notes to the financial statements.


21


GMO Emerging Markets Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (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, 2009		  
Divot Holdings NV, Convertible
Securities-Class F		   3/27/02   $ 46,624       0.00 %   $ 466    
Divot Holdings NV, Private Equity
Securities-Class D		   6/26/00     1,502,100       0.00 %     900    
Divot Holdings NV, Private Equity
Securities-Class E		   9/21/01     124,330       0.00 %     1,244    
Fire Capital Mauritius Private Fund   9/06/06-3/30/09     11,552,300       0.10 %     9,037,232    
Martin Currie China A Share Fund
Ltd Class B		   1/20/06     2,710,928       0.09 %     8,508,896    
Martin Currie China A Share Fund
Ltd Class S		   10/14/08     —       0.02 %     1,511,015    
Millenium Information Technology   10/21/99     2,252,570       0.03 %     3,014,309    
NCH Eagle Fund LP   1/8/03     9,500,000       0.08 %     6,841,900    
SPG Infinity Technology Fund I   12/23/99     62,449       0.00 %     5,582    
Societe Generale Thalmann
Ukraine Fund		   7/15/97     199,943       0.00 %     4,000    
Steep Rock Russia Fund LP   12/22/06-5/13/09     2,250,000       0.01 %     955,211    
TDA India Technology Fund II LP   2/23/00-3/23/04     787,800       0.01 %     1,096,025    
TRI Media Equity Linked Note   8/7/09     27,235,515       0.34 %     30,937,658    
TRI Media Secured Term Note   8/7/09     29,505,475       0.29 %     26,407,332    
The Emerging European Fund II LP   12/5/97-6/24/02     471,720       0.00 %     298,031    
    $ 88,619,801    

 

See accompanying notes to the financial statements.


22


GMO Emerging Markets Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Notes to Schedule of Investments:

ADR - American Depositary Receipt

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

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

GDR - Global Depository Receipt

NVDR - Non-Voting Depository Receipt

*  Non-income producing security.

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

(b)  Bankrupt issuer.

(c)  Affiliated Company (Note 8).

(d)  Direct placement securities are restricted as to resale.

(e)  The security is currently in full liquidation.

(f)  The Fund is committed to additional capital contributions in the amount of $8,486,044 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.

Currency Abbreviations:

PLZ - Polish Zloty  

 

See accompanying notes to the financial statements.


23



GMO Emerging Markets Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $7,595,657,339) (Note 2)   $ 9,010,522,738    
Investments in affiliated issuers, at value (cost $55,204,794) (Notes 2 and 8)     42,522,310    
Cash     4,191,069    
Foreign currency, at value (cost $24,236,650) (Note 2)     24,170,612    
Receivable for investments sold     6,192,823    
Receivable for Fund shares sold     10,532,341    
Dividends and interest receivable     38,191,643    
Foreign taxes receivable     3,423,578    
Receivable for expenses reimbursed by Manager (Note 3)     224,841    
Miscellaneous receivable     3,007,277    
Total assets     9,142,979,232    
Liabilities:  
Payable for investments purchased     15,881,095    
Payable for Fund shares repurchased     44,377,733    
Payable to affiliate for (Note 3):  
Management fee     6,151,433    
Shareholder service fee     920,590    
Trustees and Chief Compliance Officer of GMO Trust fees     16,051    
Payable for foreign currency purchased     9,130    
Miscellaneous payable     4,147,843    
Accrued expenses     4,253,434    
Total liabilities     75,757,309    
Net assets   $ 9,067,221,923    

 

See accompanying notes to the financial statements.


24


GMO Emerging Markets Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 10,215,207,727    
Accumulated undistributed net investment income     37,094,266    
Accumulated net realized loss     (2,587,819,108 )  
Net unrealized appreciation     1,402,739,038    
    $ 9,067,221,923    
Net assets attributable to:  
Class II shares   $ 2,479,966,091    
Class III shares   $ 772,876,511    
Class IV shares   $ 1,920,218,374    
Class V shares   $ 257,896,112    
Class VI shares   $ 3,636,264,835    
Shares outstanding:  
Class II     231,969,522    
Class III     72,291,070    
Class IV     180,423,881    
Class V     24,271,805    
Class VI     341,418,744    
Net asset value per share:  
Class II   $ 10.69    
Class III   $ 10.69    
Class IV   $ 10.64    
Class V   $ 10.63    
Class VI   $ 10.65    

 

See accompanying notes to the financial statements.


25


GMO Emerging Markets Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $18,654,535)   $ 152,170,246    
Interest     653,894    
Dividends from affiliated issuers (net of withholding taxes of $47,400)     237,000    
Total investment income     153,061,140    
Expenses:  
Management fee (Note 3)     32,738,092    
Shareholder service fee – Class II (Note 3)     291,424    
Shareholder service fee – Class III (Note 3)     2,254,604    
Shareholder service fee – Class IV (Note 3)     953,601    
Shareholder service fee – Class V (Note 3)     454,280    
Shareholder service fee – Class VI (Note 3)     550,654    
Custodian and fund accounting agent fees     4,274,362    
Legal fees     257,508    
Trustees fees and related expenses (Note 3)     75,449    
Audit and tax fees     72,864    
Transfer agent fees     31,832    
Registration fees     16,652    
Miscellaneous     98,922    
Total expenses     42,070,244    
Fees and expenses reimbursed by Manager (Note 3)     (534,912 )  
Expense reductions (Note 2)     (14,884 )  
Net expenses     41,520,448    
Net investment income (loss)     111,540,692    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers (net of foreign capital gains tax refund of $229,036) (Note 2)     (433,425,754 )  
Investments in affiliated issuers     3,042,857    
Foreign currency, forward contracts and foreign currency related transactions     (4,713,259 )  
Net realized gain (loss)     (435,096,156 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers (net of change in foreign capital gains tax refund of
(1,041,963 $)) (Note 2)		     4,286,903,090    
Investments in affiliated issuers     16,942,506    
Foreign currency, forward contracts and foreign currency related transactions     1,932,430    
Net unrealized gain (loss)     4,305,778,026    
Net realized and unrealized gain (loss)     3,870,681,870    
Net increase (decrease) in net assets resulting from operations   $ 3,982,222,562    

 

See accompanying notes to the financial statements.


26


GMO Emerging Markets Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 111,540,692     $ 173,363,460    
Net realized gain (loss)     (435,096,156 )     (1,470,249,400 )  
Change in net unrealized appreciation (depreciation)     4,305,778,026       (5,999,536,475 )  
Net increase (decrease) in net assets from operations     3,982,222,562       (7,296,422,415 )  
Distributions to shareholders from:  
Net investment income  
Class III     (8,800,329 )     (28,336,721 )  
Class IV     (4,882,160 )     (18,273,132 )  
Class V     (3,235,392 )     (14,786,743 )  
Class VI     (4,974,703 )     (51,906,362 )  
Total distributions from net investment income     (21,892,584 )     (113,302,958 )  
Net realized gains  
Class III     —       (617,696,497 )  
Class IV     —       (460,831,288 )  
Class V     —       (246,543,395 )  
Class VI     —       (1,056,552,888 )  
Total distributions from net realized gains     —       (2,381,624,068 )  
      (21,892,584 )     (2,494,927,026 )  
Net share transactions (Note 7):  
Class II     2,462,793,096       —    
Class III     (3,133,926,148 )     1,497,926,107    
Class IV     (311,819,164 )     219,935,401    
Class V     (1,099,062,429 )     593,348,669    
Class VI     1,503,278,311       (398,899,272 )  
Increase (decrease) in net assets resulting from net share transactions     (578,736,334 )     1,912,310,905    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class II     797,937       —    
Class III     3,542,599       7,610,631    
Class IV     1,686,062       5,069,941    
Class V     444,216       3,612,956    
Class VI     2,451,167       22,495,973    
Increase in net assets resulting from purchase premiums
and redemption fees		     8,921,981       38,789,501    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (569,814,353 )     1,951,100,406    
Total increase (decrease) in net assets     3,390,515,625       (7,840,249,035 )  
Net assets:  
Beginning of period   $ 5,676,706,298     $ 13,516,955,333    
End of period (including accumulated undistributed net investment
income of $37,094,266 and distributions in excess of
net investment income of $52,553,842, respectively)		   $ 9,067,221,923     $ 5,676,706,298    

 

See accompanying notes to the financial statements.


27



GMO Emerging Markets Fund

(A Series of GMO Trust)

Financial Highlights
(For a Class II share outstanding throughout the period)

    Period from
August 12, 2009
through
August 31, 2009
(Unaudited)		  
Net asset value, beginning of period   $ 10.62    
Income (loss) from investment operations:  
Net investment income (loss)†      0.01    
Net realized and unrealized gain (loss)     0.06    
Total from investment operations     0.07    
Net asset value, end of period   $ 10.69    
Total Return(a)      0.66 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 2,479,966    
Net expenses to average daily net assets     1.02 %*(b)   
Net investment income to average daily net assets     0.93 %*   
Portfolio turnover rate     75 %**††   
Fees and expenses reimbursed by the Manager to average daily net assets:     0.03 %*   
Purchase premiums and redemption fees consisted of the following per share amounts:†    $ 0.00 (c)   

 

(a)  The total returns would have been lower had certain expenses not been reimbursed during the periods shown. 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.

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

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover of the Fund for the six months ended August 31, 2009.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


28


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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 6.30     $ 20.48     $ 20.67     $ 22.49     $ 19.05     $ 15.78    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.13       0.23       0.25       0.41       0.37       0.34    
Net realized and unrealized
gain (loss)		     4.28       (10.65 )     5.94       3.00       6.24       4.40    
Total from investment
operations		     4.41       (10.42 )     6.19       3.41       6.61       4.74    
Less distributions to shareholders:  
From net investment income     (0.02 )     (0.13 )     (0.31 )     (0.54 )     (0.43 )     (0.32 )  
From net realized gains     —       (3.63 )     (6.07 )     (4.69 )     (2.74 )     (1.15 )  
Total distributions     (0.02 )     (3.76 )     (6.38 )     (5.23 )     (3.17 )     (1.47 )  
Net asset value, end of
period		   $ 10.69     $ 6.30     $ 20.48     $ 20.67     $ 22.49     $ 19.05    
Total Return(a)      70.11 %**      (58.62 )%     28.38 %     17.05 %     37.99 %     31.45 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 772,877     $ 2,309,057     $ 3,402,343     $ 4,276,782     $ 4,788,395     $ 4,433,098    
Net expenses to average
daily net assets		     1.07 %(b)*      1.10 %(c)      1.09 %(c)      1.07 %     1.10 %     1.11 %  
Net investment income to
average daily net assets		     2.86 %*      1.77 %     1.04 %     1.87 %     1.88 %     2.17 %  
Portfolio turnover rate     75 %**      99 %     60 %     44 %     41 %     57 %  
Fees and expenses
reimbursed by the Manager
to average daily net assets:		     0.01 %*      0.01 %     0.00 %(d)      0.01 %     0.01 %     0.01 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts:† 		   $ 0.01     $ 0.04     $ 0.04     $ 0.02     $ 0.01     $ 0.01    

 

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

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

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

(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.


29


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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 6.27     $ 20.40     $ 20.62     $ 22.45     $ 19.02     $ 15.75    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.12       0.25       0.23       0.42       0.40       0.34    
Net realized and unrealized
gain (loss)		     4.27       (10.62 )     5.95       2.99       6.20       4.41    
Total from investment
operations		     4.39       (10.37 )     6.18       3.41       6.60       4.75    
Less distributions to shareholders:  
From net investment income     (0.02 )     (0.13 )     (0.33 )     (0.55 )     (0.43 )     (0.33 )  
From net realized gains     —       (3.63 )     (6.07 )     (4.69 )     (2.74 )     (1.15 )  
Total distributions     (0.02 )     (3.76 )     (6.40 )     (5.24 )     (3.17 )     (1.48 )  
Net asset value, end of
period		   $ 10.64     $ 6.27     $ 20.40     $ 20.62     $ 22.45     $ 19.02    
Total Return(a)      70.13 %**      (58.59 )%     28.38 %     17.10 %     38.05 %     31.59 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 1,920,218     $ 1,345,811     $ 3,021,319     $ 2,599,002     $ 3,081,021     $ 3,255,865    
Net expenses to average
daily net assets		     1.02 %(b)*      1.06 %(c)      1.05 %(c)      1.03 %     1.05 %     1.06 %  
Net investment income to
average daily net assets		     2.74 %*      1.86 %     0.98 %     1.94 %     2.03 %     2.13 %  
Portfolio turnover rate     75 %**      99 %     60 %     44 %     41 %     57 %  
Fees and expenses
reimbursed by the Manager
to average daily net assets:		     0.01 %*      0.01 %     0.00 %(d)      0.01 %     0.01 %     0.01 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts:† 		   $ 0.01     $ 0.04     $ 0.02     $ 0.02     $ 0.01     $ 0.00 (e)   

 

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

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

(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.


30


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31


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, 2009 		 


Year Ended February 28/29,		  
    (Unaudited)   2009   2008   2007   2006  
Net asset value, beginning of period   $ 6.26     $ 20.39     $ 20.61     $ 22.44     $ 19.02    
Income (loss) from investment operations:  
Net investment income (loss)†      0.13       0.22       0.23       0.43       0.22    
Net realized and unrealized gain (loss)     4.26       (10.58 )     5.96       2.98       6.39    
Total from investment operations     4.39       (10.36 )     6.19       3.41       6.61    
Less distributions to shareholders:  
From net investment income     (0.02 )     (0.14 )     (0.34 )     (0.55 )     (0.45 )  
From net realized gains     —       (3.63 )     (6.07 )     (4.69 )     (2.74 )  
Total distributions     (0.02 )     (3.77 )     (6.41 )     (5.24 )     (3.19 )  
Net asset value, end of period   $ 10.63     $ 6.26     $ 20.39     $ 20.61     $ 22.44    
Total Return(c)      70.24 %     (58.59 )%     28.43 %     17.11 %     38.12 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 257,896     $ 795,586     $ 1,190,887     $ 679,988     $ 1,447,059    
Net expenses to average daily net assets     1.00 %(d)*      1.03 %(e)      1.03 %(e)      1.01 %     1.04 %  
Net investment income to average daily
net assets		     2.93 %*      1.81 %     0.98 %     1.97 %     1.06 %  
Portfolio turnover rate     75 %**      99 %     60 %     44 %     41 %  
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.01 %*      0.01 %     0.00 (g)      0.01 %     0.01 %  
Purchase premiums and redemption
fees consisted of the following per
share amounts:† 		   $ 0.00 (h)    $ 0.05     $ 0.05     $ 0.03     $ 0.02    

 

(a)  The class was inactive from October 27, 2004 to February 10, 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.

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

(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%.

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

†  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.

See accompanying notes to the financial statements.


32


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		  
    February 28, 2005(a)    October 26, 2004(a)   
Net asset value, beginning of period   $ 17.88     $ 15.77    
Income (loss) from investment operations:  
Net investment income (loss)†      (0.01 )     0.25    
Net realized and unrealized gain (loss)     1.15       (0.09 )  
Total from investment operations     1.14       0.16    
Less distributions to shareholders:  
From net investment income     —       (0.07 )  
From net realized gains     —       (0.00 )(b)   
Total distributions     —       (0.07 )  
Net asset value, end of period   $ 19.02     $ 15.86    
Total Return(c)      6.38 %**      1.10 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 38,564     $ 116,417    
Net expenses to average daily net assets     1.03 %*      1.05 %*   
Net investment income to average daily
net assets		     (0.05 )%(f)**      1.70 %(f)**   
Portfolio turnover rate     57 %***      57 %***   
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.02 %*      0.01 %*   
Purchase premiums and redemption
fees consisted of the following per
share amounts:† 		     —       —    

 

See accompanying notes to the financial statements.


33


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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 6.27     $ 20.42     $ 20.63     $ 22.45     $ 19.03     $ 15.76    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.12       0.23       0.25       0.42       0.38       0.34    
Net realized and unrealized
gain (loss)		     4.28       (10.61 )     5.95       3.01       6.23       4.41    
Total from investment
operations		     4.40       (10.38 )     6.20       3.43       6.61       4.75    
Less distributions to shareholders:  
From net investment income     (0.02 )     (0.14 )     (0.34 )     (0.56 )     (0.45 )     (0.33 )  
From net realized gains     —       (3.63 )     (6.07 )     (4.69 )     (2.74 )     (1.15 )  
Total distributions     (0.02 )     (3.77 )     (6.41 )     (5.25 )     (3.19 )     (1.48 )  
Net asset value, end of
period		   $ 10.65     $ 6.27     $ 20.42     $ 20.63     $ 22.45     $ 19.03    
Total Return(a)      70.28 %     (58.61 )%     28.49 %     17.20 %     38.07 %     31.63 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 3,636,265     $ 1,226,252     $ 5,902,406     $ 5,116,565     $ 3,203,435     $ 2,083,376    
Net expenses to average
daily net assets		     0.95 %(b)*      1.00 %(c)      1.00 %(c)      0.98 %     1.00 %     1.01 %  
Net investment income to
average daily net assets		     2.67 %*      1.83 %     1.05 %     1.93 %     1.94 %     2.15 %  
Portfolio turnover rate     75 %**      99 %     60 %     44 %     41 %     57 %  
Fees and expenses
reimbursed by the Manager
to average daily net assets:		     0.02 %*      0.01 %     0.00 %(d)      0.01 %     0.01 %     0.01 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts:† 		   $ 0.01     $ 0.07     $ 0.03     $ 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. 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.

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

(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.


34



GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Emerging Markets Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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/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"). Under normal circumstances, the Fund invests at least 80% of its assets in investments tied economically to emerging markets. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives (including options, futures, warrants, and swap contracts) and may invest in exchange-traded funds ("ETFs"). The Fund has entered into an agreement with ETFs that allows the Fund to invest in an ETF beyond 1940 Act statutory limitations, provided that the Fund complies with the terms and conditions of the relevant ETF's exemptive order. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

As of August 31, 2009, the Fund had five classes of shares outstanding: Class II, Class III, Class IV, Class V and Class VI. Class II shares commenced operations on August 12, 2009. Each class of shares bears a different shareholder service fee.

The financial statements of the series of the Trust in which the Fund invests ("underlying fund") 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). As of August 31, 2009, shares of GMO Special Purpose Holding Fund were 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


35


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a t hird party vendor using that vendor's proprietary models. As of August 31, 2009, 74.33% of the net assets of the Fund were valued using fair value prices based on models used by a third party vendor and are classified as using Level 2 inputs in the table below.

Indian regulators alleged in 2003 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, 2009. The valuation of this possible claim and all matters relating to the Fund's response to these allegations are subject to the supervision and control of the Trustees, and all costs in respect of this matter are being borne by the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities


36


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund's securities in Thailand were valued at the local price and subject to a premium adjustment upon exceeding foreign ownership limitations. The Fund valued various investment funds based on valuations provided by fund sponsors and adjusted the values for liquidity considerations as well as the timing of the receipt of information. The Fund valued certain equity securities based on values of underlying securities to which the securities are linked, and certain other equity securities based on the last traded exchange price adjusted for the movement in a related index . The Fund considered certain bankrupt securities to be worthless.

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Common Stocks  
Argentina   $ 7,730,241     $ —     $ —     $ 7,730,241    
Brazil     449,865,436       —       —       449,865,436    
Chile     26,464,693       —       —       26,464,693    
China     57,627,989       867,736,523       0 *      925,364,512    
Czech Republic     —       32,300,211       —       32,300,211    
Egypt     119,780,582       —       —       119,780,582    
Hungary     —       27,791,146       —       27,791,146    
India     64,089,608       460,979,836       —       525,069,444    
Indonesia     —       217,526,473       —       217,526,473    
Israel     29,598,595       46,621,795       —       76,220,390    
Lebanon     —       —       0 *      0    
Malaysia     —       148,194,624       —       148,194,624    

 


37


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

ASSET VALUATION INPUTS — continued

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Mexico   $ 67,826,518     $ —     $ —     $ 67,826,518    
Morocco     —       15,265,903       —       15,265,903    
Peru     2,204,554       —       —       2,204,554    
Philippines     2,094,875       53,964,607       —       56,059,482    
Poland     1,751,551       241,951,557       —       243,703,108    
Russia     143,967,850       950,937,230       1,796,113       1,096,701,193    
South Africa     4,635,114       182,253,573       —       186,888,687    
South Korea     11,760,767       1,630,451,479       648,727       1,642,860,973    
Sri Lanka     —       97,386       —       97,386    
Taiwan     —       897,563,894       —       897,563,894    
Thailand     —       —       481,275,545       481,275,545    
Turkey     —       857,605,203       0 *      857,605,203    
TOTAL COMMON STOCKS     989,398,373       6,631,241,440       483,720,385       8,104,360,198    
Preferred Stocks  
Brazil     615,885,681       —       —       615,885,681    
Russia     —       32,542,436       —       32,542,436    
South Korea     —       75,853,876       —       75,853,876    
TOTAL PREFERRED STOCKS     615,885,681       108,396,312       —       724,281,993    
Private Equity Securities  
Poland     —       —       30,937,658       30,937,658    
Russia     —       —       2,610       2,610    
Sri Lanka     —       —       3,014,309       3,014,309    
TOTAL PRIVATE
EQUITY SECURITIES		     —       —       33,954,577       33,954,577    
Investment Funds  
China     —       —       10,019,911       10,019,911    
India     —       —       10,138,839       10,138,839    
Poland     —       —       298,031       298,031    
Russia     —       —       7,797,111       7,797,111    
Ukraine     —       —       4,000       4,000    
TOTAL INVESTMENT FUNDS     —       —       28,257,892       28,257,892    

 


38


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

ASSET VALUATION INPUTS — continued

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Debt Obligations  
Poland   $ —     $ —     $ 26,407,332     $ 26,407,332    
United States     —       9,460,657       —       9,460,657    
TOTAL DEBT OBLIGATIONS     —       9,460,657       26,407,332       35,867,989    
Rights and Warrants  
Malaysia     —       1,316,774       —       1,316,774    
TOTAL RIGHTS AND
WARRANTS		     —       1,316,774       —       1,316,774    
Mutual Funds  
United States     —       5,645       —       5,645    
TOTAL MUTUAL FUNDS     —       5,645       —       5,645    
Convertible Securities  
India     —       9,899,980       —       9,899,980    
TOTAL CONVERTIBLE
SECURITIES		     —       9,899,980       —       9,899,980    
Short-Term Investments     115,100,000       —       —       115,100,000    
Total Investments     1,720,384,054       6,760,320,808       572,340,186       9,053,045,048    
Total   $ 1,720,384,054     $ 6,760,320,808     $ 572,340,186     $ 9,053,045,048    

 

*  Represents the interest in securities that have no value at August 31, 2009.

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (both direct and indirect) in securities using Level 3 inputs were 6.31% of total net assets.


39


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

    Balances
as of
February 28,
2009		   Net
Purchase/
Sales		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/Loss		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
 of Level 3		   Balances
as of
August 31,
2009		  
Common Stock  
China   $ —     $ —     $ —     $ —     $ (1,229,394 )   $ 1,229,394     $ —    
India     59,482       —       —       —       (59,482 )     —       —    
Lebanon     35,695       —       —       —       (35,695 )     —       —    
Russia     917,112       —       —       —       879,001       —       1,796,113    
South Korea     —       (7,709 )     —       (143,477 )     136,988       662,925       648,727    
Thailand     265,406,178       68,284,709       —       (51,009,291 )     198,593,949       —       481,275,545    
Turkey     248       —       —       —       (248 )     —       —    
Total Common
Stock		     266,418,715       68,277,000       —       (51,152,768 )     198,285,119       1,892,319       483,720,385    
Private Equity
Securities		  
Poland     33,454,416       (29,505,475 )     —       56,740,987       (29,752,270 )     —       30,937,658    
Russia     2,610       —       —       —       —       —       2,610    
Sri Lanka     787,469       —       —       —       2,226,840       —       3,014,309    
Total Private
Equity
Securities		     34,244,495       (29,505,475 )     —       56,740,987       (27,525,430 )     —       33,954,577    
Investment Funds  
China     8,299,762       —       —       —       1,720,149       —       10,019,911    
India     7,530,572       592,437       —       —       2,015,830       —       10,138,839    
Poland     767,055       (652,528 )     —       —       183,504       —       298,031    
Russia     6,291,343       250,000       —       —       1,255,768       —       7,797,111    
Ukraine     4,000       —       —       —       —       —       4,000    
Total Investment
Funds		     22,892,732       189,909       —       —       5,175,251       —       28,257,892    
Debt Obligations  
Poland     —       29,505,475       —       —       (3,098,143 )     —       26,407,332    
Mutual Funds  
United States     5,887       —       —       —       (242 )     (5,645 )     —    
Total   $ 323,561,829     $ 68,466,909     $ —     $ 5,588,219     $ 172,836,555     $ 1,886,674     $ 572,340,186    

 


40


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some circumstances, futures exchanges may establish daily limits on the


41


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign futures on those exchanges do not reflect events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign futures using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor based on that vendor's proprietary models. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.


42


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.


43


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and warrants held by the Fund at the end of the period are listed in the Fund's Schedule of Investments.


44


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 carryforwards 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 certain countries in which it invests. For the period ended August 31, 2009, the Fund received $229,036 in foreign capital gains tax refund, 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, 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $1,670,327,437.


45


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:



Aggregate Cost		  
Gross Unrealized
Appreciation		  
Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 8,236,775,737     $ 1,136,865,432     $ (320,596,121 )   $ 816,269,311    

 

For the period ended August 31, 2009, the Fund had net realized losses attributed to redemption in-kind transactions of $30,109,409.

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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 incurs fees and expenses indirectly as a shareholder in the underlying fund (See Note 3).


46


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2009, the premium on cash purchases and fee on cash redemptions of Fund shares were each 0.80% of the amount invested or redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund wil l not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.


47


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets (e.g., Brazil, India, Russia, South Korea, and Taiwan). Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging markets, which tend to be more volatile than developed markets.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. These risks are particularly pronounced for the Fund because it typically makes equity investments in companies in emerging markets and may make investments in companies with smaller market capitalizations. In addition, the Fund may buy securities that are less liquid than those in its benchmark.

• Smaller Company Risk — The securities of companies with smaller market capitalizations typically are less widely held, trade less frequently and in lesser quantities, and have market prices that may fluctuate more than those of securities of larger capitalization companies. The Fund may buy securities that have smaller market capitalizations than those in its benchmark.

Other principal risks of an investment in the Fund include Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Focused Investment Risk (increased risk from the Fund's focus on investments in a limited number of countries and geographic regions), Market Risk — Value Securities (risk that the price of the Fund's securities may not increase to what the Manager believes to be their fundamental value or that the Manager ma y have overestimated their fundamental value), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds (including ETFs) in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if t he Fund were diversified.


48


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index). The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms


49


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

(e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictability of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.


50


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (rights and
warrants)		   $ —     $ —     $ —     $ 1,316,774     $ —     $ 1,316,774    
Unrealized appreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 1,316,774     $ —     $ 1,316,774    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


51


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (rights and warrants)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       322,948       —       —       —       322,948    
Total   $ —     $ 322,948     $ —     $ —     $ —     $ 322,948    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (rights and warrants)   $ —     $ —     $ —     $ 1,947,590     $ —     $ 1,947,590    
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       1,904,936       —       —       —       1,904,936    
Total   $ —     $ 1,904,936     $ —     $ 1,947,590     $ —     $ 3,852,526    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Rights/
Warrants		  
Average notional amount outstanding   $ 21,775,637     $ 1,486,234    
Highest notional amount outstanding     97,770,897       3,225,572    
Lowest notional amount outstanding     —       826,012    

 


52


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Other matters

GMO Special Purpose Holding Fund ("SPHF"), an investment of the Fund, has litigation pending against various entities related to the 2002 default of securities previously held by SPHF. The outcome of the lawsuits against the remaining defendants is not known and any potential recoveries are not reflected in the net asset value of SPHF. For the period ended August 31, 2009, the Fund received no distributions through SPHF in connection with settlement agreements related to that litigation.

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. Effective August 12, 2009, that fee is paid monthly at the annual rate of 0.75% of average daily net assets. Before August 12, 2009, the management fee was 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 0.22% for Class II shares, 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 each class of the Fund for expenses incurred by the class through at least June 30, 2010 to the extent the class's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed the following amounts of the class's average daily net assets: 0.95% for Class II shares, 0.90% for Class III shares, 0.85% for Class IV shares, 0.80% for Class V shares, and 0.77% for Class VI shares. Excluded Fund Fees and 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 (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 (including an exchange-traded fund) or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Sections 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses (including taxes), and custodial fees. In addition, the Manager has contractually agreed to reimburse each class of the Fund through at least June 30, 2010 to the extent that the sum of (a) the class's total annual operating expenses (excluding Excluded Fund Fees and Expenses) and (b) the amount of fees and expenses incurred indirectly by the class through its investment in GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds the following amounts of the class's average daily net assets: 0.95% for Class II shares, 0.90% for Class III shares, 0.85% for Class IV shares, 0.8 0% for Class V shares, and 0.77% for Class VI shares, subject to a maximum total reimbursement to each class equal to such amounts of the class's average daily net assets.


53


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the GMO Special Purpose Holding Fund. For the period ended August 31, 2009, these indirect fees and expenses expressed as an annualized percentage of the Fund's average daily net assets were as follows:

Indirect Net Expenses
(excluding shareholder
service fees)		   Indirect Shareholder
Service Fees		   Total Indirect Expenses  
< 0.001%     0.000 %   < 0.001%  

 

      

The Fund's portion of the fees paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2009 was $59,717 and $34,592, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $5,833,019,981 and $6,201,461,509, respectively. Proceeds from sales of securities for in-kind transactions for the period ended August 31, 2009 were $72,183,877.

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, the Fund had no shareholders who individually held more than 10% of the Fund's outstanding shares.

As of August 31, 2009, 0.53% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 17.85% of the Fund's shares were held by accounts for which the Manager had investment discretion.


54


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:

    Period from August 12, 2009
through August 31, 2009
(Unaudited)		  
Class II:   Shares   Amount  
Shares sold     240,291,234     $ 2,552,038,132    
Shares repurchased     (8,321,712 )     (89,245,036 )  
Purchase premiums     —       40,000    
Redemption fees     —       757,937    
Net increase (decrease)     231,969,522     $ 2,463,591,033    

 

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     33,722,297     $ 279,589,708       199,316,510     $ 1,549,659,316    
Shares issued to shareholders
in reinvestment of distributions		     695,268       6,730,191       54,047,677       611,126,733    
Shares repurchased     (328,600,455 )     (3,420,246,047 )     (53,039,178 )     (662,859,942 )  
Purchase premiums     —       1,612,283       —       3,747,220    
Redemption fees     —       1,930,316       —       3,863,411    
Net increase (decrease)     (294,182,890 )   $ (3,130,383,549 )     200,325,009     $ 1,505,536,738    
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     51,903,729     $ 499,062,290       157,053,136     $ 1,026,539,902    
Shares issued to shareholders
in reinvestment of distributions		     368,194       3,549,390       40,848,201       475,454,559    
Shares repurchased     (86,446,145 )     (814,430,844 )     (131,400,487 )     (1,282,059,060 )  
Purchase premiums     —       182,584       —       482,899    
Redemption fees     —       1,503,478       —       4,587,042    
Net increase (decrease)     (34,174,222 )   $ (310,133,102 )     66,500,850     $ 225,005,342    

 


55


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class V:   Shares   Amount   Shares   Amount  
Shares sold     7,536,666     $ 62,111,505       196,888,178     $ 1,458,962,017    
Shares issued to shareholders
in reinvestment of distributions		     291,139       2,800,755       24,664,677       260,296,435    
Shares repurchased     (110,636,529 )     (1,163,974,689 )     (152,881,388 )     (1,125,909,783 )  
Purchase premiums     —       150,000       —       3,005,084    
Redemption fees     —       294,216       —       607,872    
Net increase (decrease)     (102,808,724 )   $ (1,098,618,213 )     68,671,467     $ 596,961,625    
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     173,608,168     $ 1,776,478,314       244,681,931     $ 2,170,286,504    
Shares issued to shareholders
in reinvestment of distributions		     512,259       4,938,176       88,616,021       1,028,385,993    
Shares repurchased     (28,156,712 )     (278,138,179 )     (426,960,691 )     (3,597,571,769 )  
Purchase premiums     —       451,881       —       10,675,993    
Redemption fees     —       1,999,286       —       11,819,980    
Net increase (decrease)     145,963,715     $ 1,505,729,478       (93,662,739 )   $ (376,403,299 )  

 


56


GMO Emerging Markets Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated companies and other funds of the Trust

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 that are or were affiliates during the period ended August 31, 2009 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Value, end
of period		  
Boryung Pharmaceutical Co Ltd   $ 2,759,751     $ —     $ 790,813     $ —     $ 5,168,637    
CBAY Systems Holdings Ltd     7,663,868       —       —       —       11,329,499    
Daehan Pulp Co Ltd     1,825,376       3,337,502       844,129       —       5,843,763    
Dimerco Express Taiwan Corp     6,639,875       —       619,920       203,774       7,865,272    
Edu Ark Co Ltd     662,925       4,568       12,273       —       648,727    
In The F Co Ltd     1,677,571       —       66,363       —       3,417,453    
Keangnam Enterprises Ltd*      707,885       4,935,662       5,175,348       —       6,784,840    
Les Enphants Co Ltd*      4,441,616       —       5,147,004       33,226       2,858,789    
Millenium Information Technology     787,469       —       —       —       3,014,309    
Pumyang Construction Co Ltd     5,161,915       —       498,664       —       5,228,091    
Star Block Co Ltd
(Foreign Registered)		     859       —       —       —       —    
Totals   $ 32,329,110     $ 8,277,732     $ 13,154,514     $ 237,000     $ 52,159,380    

 

*  No longer an affiliate as of August 31, 2009.

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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   $ 5,887     $ —     $ —     $ —     $ —     $ 5,645    
Totals   $ 5,887     $ —     $ —     $ —     $ —     $ 5,645    

 

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


57



GMO Emerging Markets Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered information provided by the Manager addressing the Fund's performance, including a performance attribution analysis. 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


58


GMO Emerging Markets Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

effective August 12, 2009. 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 in which it invests. 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.


59


GMO Emerging Markets Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


60


GMO Emerging Markets Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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.


61


GMO Emerging Markets Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2009 (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
Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred		  
Class II      
1) Actual     1.02 %   $ 1,000.00     $ 1,006.60     $ 0.53 (a)   
2) Hypothetical     1.02 %   $ 1,000.00     $ 1,020.06     $ 5.19 (b)   
Class III      
1) Actual     1.07 %   $ 1,000.00     $ 1,701.10     $ 7.28 *   
2) Hypothetical     1.07 %   $ 1,000.00     $ 1,019.81     $ 5.45 *   
Class IV      
1) Actual     1.02 %   $ 1,000.00     $ 1,701.30     $ 6.94 *   
2) Hypothetical     1.02 %   $ 1,000.00     $ 1,020.06     $ 5.19 *   
Class V      
1) Actual     1.00 %   $ 1,000.00     $ 1,702.40     $ 6.81 *   
2) Hypothetical     1.00 %   $ 1,000.00     $ 1,020.16     $ 5.09 *   
Class VI      
1) Actual     0.95 %   $ 1,000.00     $ 1,702.80     $ 6.47 *   
2) Hypothetical     0.95 %   $ 1,000.00     $ 1,020.42     $ 4.84 *   

 

(a)  For the period August 12, 2009 (commencement of operations) through August 31, 2009. Expense is calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the period ended August 31, 2009, multiplied by the average account value over the period, multiplied by 19 days in the period, divided by 365 days in the year.

(b)  For the period March 1, 2009 through August 31, 2009. Expense is calculated using the Class's annualized net expense ratio (including indirect expenses incurred) for the period ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


62



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.7 %  
Short-Term Investments     3.4    
Futures Contracts     0.1    
Other     (0.2 )  
      100.0 %  
Industry Group Summary   % of Equity Investments  
Pharmaceuticals, Biotechnology & Life Sciences     19.6 %  
Software & Services     12.8    
Energy     11.2    
Food, Beverage & Tobacco     8.8    
Health Care Equipment & Services     8.4    
Technology Hardware & Equipment     8.1    
Retailing     6.2    
Food & Staples Retailing     6.0    
Household & Personal Products     3.3    
Insurance     2.7    
Consumer Services     2.4    
Capital Goods     1.8    
Telecommunication Services     1.7    
Diversified Financials     1.6    
Materials     1.1    
Banks     0.9    
Media     0.9    
Utilities     0.7    
Consumer Durables & Apparel     0.6    
Semiconductors & Semiconductor Equipment     0.5    
Transportation     0.3    
Commercial & Professional Services     0.3    
Automobiles & Components     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, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.7%  
        Automobiles & Components — 0.1%  
    27,000     Harley-Davidson, Inc.     647,460    
    27,700     Johnson Controls, Inc.     686,129    
    Total Automobiles & Components     1,333,589    
        Banks — 0.9%  
    186,100     BB&T Corp.     5,199,634    
    17,200     Capitol Federal Financial     552,636    
    4,800     City National Corp.     189,600    
    5,100     Commerce Bancshares, Inc.     187,323    
    4,000     Cullen/Frost Bankers, Inc.     197,120    
    29,200     First Horizon National Corp. *      390,696    
    69,700     People's United Financial, Inc.     1,119,382    
    56,200     TFS Financial Corp.     640,680    
    31,700     US Bancorp     717,054    
    23,235     Valley National Bancorp     270,920    
    273,200     Wells Fargo & Co.     7,518,464    
    Total Banks     16,983,509    
        Capital Goods — 1.7%  
    128,600     3M Co.     9,272,060    
    6,500     Aecom Technology Corp. *      178,165    
    4,400     Caterpillar, Inc.     199,364    
    3,000     Danaher Corp.     182,130    
    125,391     DigitalGlobe, Inc. *      2,515,344    
    37,400     Fastenal Co.     1,353,880    
    145,700     General Dynamics Corp.     8,623,983    
    11,400     Goodrich Corp.     628,824    
    5,700     L-3 Communications Holdings, Inc.     424,080    
    25,400     Lockheed Martin Corp.     1,904,492    
    60,600     Masco Corp.     877,488    
    10,600     Parker-Hannifin Corp.     515,796    
    3,900     Rockwell Collins, Inc.     179,556    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Capital Goods — continued  
    87,000     United Technologies Corp.     5,164,320    
    25,500     URS Corp. *      1,102,365    
    10,300     W.W. Grainger, Inc.     900,941    
    Total Capital Goods     34,022,788    
        Commercial & Professional Services — 0.2%  
    6,500     Cintas Corp.     178,360    
    33,100     Copart, Inc. *      1,169,754    
    8,700     Dun & Bradstreet Corp.     635,448    
    12,200     Iron Mountain, Inc. *      357,338    
    12,300     Manpower, Inc.     635,910    
    10,000     Robert Half International, Inc.     262,900    
    51,500     Waste Management, Inc.     1,541,395    
    Total Commercial & Professional Services     4,781,105    
        Consumer Durables & Apparel — 0.6%  
    265,100     Coach, Inc.     7,499,679    
    29,000     Hasbro, Inc.     823,310    
    50,900     Leggett & Platt, Inc.     928,925    
    853     NVR, Inc. *      575,988    
    14,600     Polo Ralph Lauren Corp.     969,148    
    56,200     Pulte Homes, Inc.     718,236    
    9,300     Toll Brothers, Inc. *      211,482    
    2,800     VF Corp.     194,768    
    5,300     Whirlpool Corp.     340,313    
    Total Consumer Durables & Apparel     12,261,849    
        Consumer Services — 2.3%  
    233,000     Apollo Group, Inc.-Class A *      15,103,060    
    14,700     Career Education Corp. *      349,125    
    18,200     Darden Restaurants, Inc.     599,326    
    88,000     H&R Block, Inc.     1,520,640    
    68,800     ITT Educational Services, Inc. *      7,223,312    
    8,331     Marriott International, Inc.-Class A     199,111    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Consumer Services — continued  
    276,400     McDonald's Corp.     15,544,736    
    10,100     Penn National Gaming, Inc. *      295,021    
    206,300     Starbucks Corp. *      3,917,637    
    4,060     Strayer Education, Inc.     857,066    
    9,900     Yum! Brands, Inc.     339,075    
    Total Consumer Services     45,948,109    
        Diversified Financials — 1.5%  
    7,000     American Express Co.     236,740    
    950     BlackRock, Inc.     189,591    
    5,820     CME Group, Inc.     1,693,853    
    107,730     Goldman Sachs Group (The), Inc.     17,825,006    
    2,200     Greenhill & Co., Inc.     174,240    
    8,900     IntercontinentalExchange, Inc. *      834,820    
    56,500     JPMorgan Chase & Co.     2,455,490    
    31,800     Moody's Corp.     866,232    
    106,000     Morgan Stanley     3,069,760    
    9,900     SEI Investments Co.     182,556    
    8,100     State Street Corp.     425,088    
    10,000     TD Ameritrade Holding Corp. *      192,400    
    67,377     World Acceptance Corp. *      1,753,823    
    Total Diversified Financials     29,899,599    
        Energy — 10.9%  
    2,160     Apache Corp.     183,492    
    22,300     Baker Hughes, Inc.     768,235    
    94,300     BJ Services Co.     1,514,458    
    937,000     Chevron Corp.     65,533,780    
    14,300     Cimarex Energy Co.     558,272    
    620,468     ConocoPhillips     27,939,674    
    4,800     ENSCO International, Inc.     177,120    
    1,394,100     Exxon Mobil Corp.     96,402,015    
    77,600     Nabors Industries Ltd. *      1,371,968    
    19,100     Noble Energy, Inc.     1,154,786    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Energy — continued  
    148,900     Occidental Petroleum Corp.     10,884,590    
    57,700     Patterson-UTI Energy, Inc.     766,833    
    34,400     Southwestern Energy Co. *      1,267,984    
    78,900     Sunoco, Inc.     2,122,410    
    272,500     Valero Energy Corp.     5,106,650    
    Total Energy     215,752,267    
        Food & Staples Retailing — 5.8%  
    129,200     CVS Caremark Corp.     4,847,584    
    266,300     Kroger Co. (The)     5,749,417    
    24,525     Supervalu, Inc.     351,934    
    40,400     Sysco Corp.     1,029,796    
    1,558,600     Wal-Mart Stores, Inc.     79,285,982    
    714,400     Walgreen Co.     24,203,872    
    22,400     Whole Foods Market, Inc. *      651,392    
    Total Food & Staples Retailing     116,119,977    
        Food, Beverage & Tobacco — 8.5%  
    1,007,700     Altria Group, Inc.     18,420,756    
    83,100     Archer-Daniels-Midland Co.     2,395,773    
    61,000     Campbell Soup Co.     1,912,960    
    1,025,300     Coca-Cola Co. (The)     50,003,881    
    121,000     Coca-Cola Enterprises, Inc.     2,445,410    
    42,400     Constellation Brands, Inc.-Class A *      627,096    
    47,700     Dean Foods Co. *      865,278    
    7,000     Flowers Foods, Inc.     166,390    
    129,700     General Mills, Inc.     7,746,981    
    39,100     Hansen Natural Corp. *      1,277,006    
    122,900     Hershey Co. (The)     4,821,367    
    5,200     Hormel Foods Corp.     192,140    
    25,500     JM Smucker Co. (The)     1,332,885    
    61,500     Kellogg Co.     2,896,035    
    61,000     Kraft Foods, Inc.-Class A     1,729,350    
    30,000     Lorillard, Inc.     2,183,100    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Food, Beverage & Tobacco — continued  
    55,700     Pepsi Bottling Group (The), Inc.     1,990,161    
    674,000     PepsiCo, Inc.     38,195,580    
    646,400     Philip Morris International, Inc.     29,546,944    
    5,400     Ralcorp Holdings, Inc. *      338,742    
    Total Food, Beverage & Tobacco     169,087,835    
        Health Care Equipment & Services — 8.2%  
    275,600     AmerisourceBergen Corp.     5,873,036    
    93,700     Baxter International, Inc.     5,333,404    
    166,500     Cardinal Health, Inc.     5,757,570    
    25,500     Cerner Corp. *      1,573,605    
    88,500     Cigna Corp.     2,604,555    
    71,600     Coventry Health Care, Inc. *      1,563,028    
    34,700     DaVita, Inc. *      1,794,337    
    18,500     Edwards Lifesciences Corp. *      1,144,780    
    92,400     Express Scripts, Inc. *      6,673,128    
    7,500     Gen-Probe, Inc. *      289,125    
    42,200     Humana, Inc. *      1,506,540    
    16,600     Inverness Medical Innovations, Inc. *      590,960    
    204,700     McKesson Corp.     11,639,242    
    32,500     Medco Health Solutions, Inc. *      1,794,650    
    276,700     Medtronic, Inc.     10,597,610    
    59,000     Omnicare, Inc.     1,350,510    
    22,500     Patterson Cos., Inc. *      612,675    
    75,700     Quest Diagnostics, Inc.     4,084,772    
    13,700     ResMed, Inc. *      628,967    
    31,400     Stryker Corp.     1,301,844    
    3,800     Teleflex, Inc.     172,140    
    2,064,472     UnitedHealth Group, Inc.     57,805,216    
    516,900     WellPoint, Inc. *      27,318,165    
    213,200     Zimmer Holdings, Inc. *      10,095,020    
    Total Health Care Equipment & Services     162,104,879    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Household & Personal Products — 3.2%  
    69,800     Avon Products, Inc.     2,224,526    
    11,500     Church & Dwight Co., Inc.     656,995    
    92,400     Clorox Co.     5,459,916    
    240,600     Colgate-Palmolive Co.     17,491,620    
    22,800     Estee Lauder Cos. (The), Inc.-Class A     817,380    
    120,700     Kimberly-Clark Corp.     7,297,522    
    542,300     Procter & Gamble Co. (The)     29,343,853    
    Total Household & Personal Products     63,291,812    
        Insurance — 2.6%  
    18,900     Aflac, Inc.     767,718    
    241,100     Allstate Corp. (The)     7,085,929    
    9,800     American Financial Group, Inc.     251,370    
    8,700     Aon Corp.     363,312    
    31,000     Arthur J. Gallagher & Co.     736,870    
    19,700     Assurant, Inc.     590,015    
    51,000     Brown & Brown, Inc.     1,013,370    
    162,000     Chubb Corp.     8,001,180    
    74,200     Fidelity National Financial, Inc.-Class A     1,114,484    
    15,600     First American Corp.     491,712    
    64,200     HCC Insurance Holdings, Inc.     1,697,448    
    102,600     Marsh & McLennan Cos., Inc.     2,415,204    
    18,300     Odyssey Re Holdings Corp.     926,895    
    60,600     Old Republic International Corp.     721,746    
    87,400     Progressive Corp. (The) *      1,443,848    
    25,200     Torchmark Corp.     1,073,772    
    407,500     Travelers Cos. (The), Inc.     20,546,150    
    15,300     Unum Group     344,709    
    105,750     W.R. Berkley Corp.     2,701,913    
    Total Insurance     52,287,645    
        Materials — 1.1%  
    150,600     Alcoa, Inc.     1,814,730    
    152,200     Barrick Gold Corp.     5,281,340    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Materials — continued  
    15,800     Bemis Co., Inc.     420,122    
    177,700     Dow Chemical Co. (The)     3,783,233    
    21,500     Freeport-McMoRan Copper & Gold, Inc.     1,354,070    
    3,900     Martin Marietta Materials, Inc.     341,562    
    29,600     Nucor Corp.     1,318,384    
    39,000     Pactiv Corp. *      969,150    
    7,900     Reliance Steel & Aluminum Co.     291,826    
    15,300     Scotts Miracle-Gro Co. (The)-Class A     622,557    
    7,400     Sonoco Products Co.     191,956    
    110,100     Southern Copper Corp.     3,111,426    
    7,400     Valspar Corp.     198,172    
    26,600     Vulcan Materials Co.     1,331,064    
    Total Materials     21,029,592    
        Media — 0.9%  
    46,500     Cablevision Systems Corp.-Class A     1,038,810    
    295,600     CBS Corp.-Class B (Non Voting)     3,059,460    
    347,200     Comcast Corp.-Class A     5,319,104    
    39,000     DirecTV Group (The), Inc. *      965,640    
    15,200     Discovery Communications, Inc. *      393,984    
    6,600     Liberty Media, Corp.-Class A *      184,074    
    21,900     McGraw-Hill Cos. (The), Inc.     736,059    
    214,800     News Corp.-Class A     2,302,656    
    6,700     Omnicom Group, Inc.     243,344    
    50,664     Time Warner Cable, Inc.     1,870,515    
    30,200     Viacom, Inc. *      756,208    
    Total Media     16,869,854    
        Pharmaceuticals, Biotechnology & Life Sciences — 19.0%  
    656,200     Abbott Laboratories     29,679,926    
    42,700     Allergan, Inc.     2,387,784    
    850,900     Amgen, Inc. *      50,832,766    
    112,000     Biogen Idec, Inc. *      5,623,520    
    1,014,400     Bristol-Myers Squibb Co.     22,448,672    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Pharmaceuticals, Biotechnology & Life Sciences — continued  
    18,000     Cephalon, Inc. *      1,024,740    
    7,600     Dendreon Corp. *      177,612    
    529,300     Eli Lilly & Co.     17,710,378    
    8,800     Endo Pharmaceuticals Holdings, Inc. *      198,616    
    360,400     Forest Laboratories, Inc. *      10,548,908    
    164,300     Gilead Sciences, Inc. *      7,403,358    
    1,088,200     Johnson & Johnson     65,770,808    
    18,200     King Pharmaceuticals, Inc. *      188,916    
    4,000     Life Technologies Corp. *      178,120    
    1,108,400     Merck & Co., Inc.     35,945,412    
    77,600     Mylan, Inc. *      1,138,392    
    24,800     Myriad Genetics, Inc. *      758,136    
    4,784,180     Pfizer, Inc.     79,895,806    
    289,900     Schering-Plough Corp.     8,169,382    
    60,200     Thermo Fisher Scientific, Inc. *      2,721,642    
    39,400     Vertex Pharmaceuticals, Inc. *      1,473,954    
    10,500     Watson Pharmaceuticals, Inc. *      370,545    
    662,900     Wyeth     31,719,765    
    Total Pharmaceuticals, Biotechnology & Life Sciences     376,367,158    
        Retailing — 6.0%  
    44,100     Abercrombie & Fitch Co.-Class A     1,423,989    
    54,700     Advance Auto Parts, Inc.     2,313,810    
    113,200     Amazon.com, Inc. *      9,190,708    
    48,800     American Eagle Outfitters, Inc.     658,800    
    47,300     AutoNation, Inc. *      897,754    
    54,950     AutoZone, Inc. *      8,091,387    
    151,900     Bed Bath & Beyond, Inc. *      5,541,312    
    151,800     Best Buy Co., Inc.     5,507,304    
    11,200     CarMax, Inc. *      193,872    
    57,200     Dollar Tree, Inc. *      2,856,568    
    8,800     Expedia, Inc. *      202,840    
    101,300     Family Dollar Stores, Inc.     3,067,364    
    98,100     Gap (The), Inc.     1,927,665    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Retailing — continued  
    11,100     Genuine Parts Co.     411,144    
    1,314,604     Home Depot, Inc.     35,875,543    
    28,500     J.C. Penney Co., Inc.     856,140    
    184,300     Kohl's Corp. *      9,508,037    
    59,300     Limited Brands, Inc.     884,756    
    518,900     Lowe's Cos., Inc.     11,156,350    
    17,800     Netflix, Inc. *      777,148    
    32,600     Nordstrom, Inc.     914,104    
    65,700     O'Reilly Automotive, Inc. *      2,514,996    
    71,300     PetSmart, Inc.     1,490,883    
    2,970     Priceline.com Inc. *      457,321    
    30,600     Ross Stores, Inc.     1,427,184    
    18,600     Sears Holdings Corp. *      1,180,170    
    77,100     Sherwin-Williams Co. (The)     4,641,420    
    95,000     Staples, Inc.     2,052,950    
    67,100     Target Corp.     3,153,700    
    7,500     Urban Outfitters, Inc. *      213,225    
    Total Retailing     119,388,444    
        Semiconductors & Semiconductor Equipment — 0.4%  
    31,600     Altera Corp.     607,036    
    104,600     Broadcom Corp.-Class A *      2,975,870    
    13,300     Cree, Inc. *      489,972    
    121,400     NVIDIA Corp. *      1,762,728    
    95,800     Texas Instruments, Inc.     2,355,722    
    19,500     Xilinx, Inc.     433,680    
    Total Semiconductors & Semiconductor Equipment     8,625,008    
        Software & Services — 12.4%  
    7,200     Adobe Systems, Inc. *      226,224    
    112,700     Affiliated Computer Services, Inc.-Class A *      5,048,960    
    23,000     Alliance Data Systems Corp. *      1,277,880    
    69,200     Automatic Data Processing, Inc.     2,653,820    
    14,900     BMC Software, Inc. *      531,185    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Software & Services — continued  
    59,100     Citrix Systems, Inc. *      2,108,688    
    73,500     Cognizant Technology Solutions Corp.-Class A *      2,563,680    
    29,600     Computer Sciences Corp. *      1,445,960    
    401,600     eBay, Inc. *      8,891,424    
    3,500     Factset Research Systems, Inc.     192,640    
    18,200     Fidelity National Information Services, Inc.     446,992    
    49,000     Global Payments, Inc.     2,079,560    
    110,440     Google, Inc.-Class A *      50,986,835    
    27,000     Intuit, Inc. *      749,790    
    6,570     MasterCard, Inc.-Class A     1,331,279    
    72,300     McAfee, Inc. *      2,876,094    
    3,219,900     Microsoft Corp.     79,370,535    
    1,084,900     Novell, Inc. *      4,719,315    
    3,330,100     Oracle Corp.     72,829,287    
    24,900     SAIC, Inc. *      460,401    
    189,100     Symantec Corp. *      2,859,192    
    30,900     Visa, Inc.-Class A     2,196,990    
    6,100     VMware, Inc. *      216,123    
    13,000     Yahoo!, Inc. *      189,930    
    Total Software & Services     246,252,784    
        Technology Hardware & Equipment — 7.8%  
    36,440     Apple, Inc. *      6,129,572    
    2,536,300     Cisco Systems, Inc. *      54,784,080    
    161,900     Corning, Inc.     2,441,452    
    510,100     Dell, Inc. *      8,074,883    
    190,900     EMC Corp. *      3,035,310    
    142,290     International Business Machines Corp.     16,797,335    
    34,100     Juniper Networks, Inc. *      786,687    
    435,700     Motorola, Inc.     3,128,326    
    1,233,500     Qualcomm, Inc.     57,259,070    
    56,200     SanDisk Corp. *      994,740    
    57,600     Western Digital Corp. *      1,974,528    
    Total Technology Hardware & Equipment     155,405,983    

 

See accompanying notes to the financial statements.


11


GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Telecommunication Services — 1.6%  
    417,567     AT&T, Inc.     10,877,620    
    95,200     CenturyTel, Inc.     3,068,296    
    87,000     Frontier Communications Corp.     618,570    
    32,400     MetroPCS Communications, Inc. *      257,904    
    552,822     Verizon Communications, Inc.     17,159,595    
    20,700     Windstream Corp.     177,399    
    Total Telecommunication Services     32,159,384    
        Transportation — 0.3%  
    29,900     CH Robinson Worldwide, Inc.     1,682,174    
    37,100     Norfolk Southern Corp.     1,701,777    
    72,400     Southwest Airlines Co.     592,232    
    44,700     United Parcel Service, Inc.-Class B     2,389,662    
    Total Transportation     6,365,845    
        Utilities — 0.7%  
    45,300     Aqua America, Inc.     763,305    
    14,300     CMS Energy Corp.     191,763    
    74,700     Consolidated Edison, Inc.     3,002,193    
    10,600     FPL Group, Inc.     595,508    
    14,800     NSTAR     468,272    
    140,500     PG&E Corp.     5,702,895    
    6,200     Piedmont Natural Gas Co., Inc.     148,924    
    12,200     Pinnacle West Capital Corp.     401,502    
    16,500     Progress Energy, Inc.     652,245    
    69,100     Southern Co.     2,155,920    
    9,900     Xcel Energy, Inc.     195,525    
    Total Utilities     14,278,052    
    TOTAL COMMON STOCKS (COST $2,033,558,029)     1,920,617,067    

 

See accompanying notes to the financial statements.


12


GMO U.S. Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 3.4%  
        Money Market Funds — 2.4%  
    46,608,263     State Street Institutional Treasury Money Market Fund-Institutional Class     46,608,263    
        Other Short-Term Investments — 1.0%  
    20,000,000     U.S. Treasury Bill, 0.26%, due 04/08/10 (a)      19,968,980    
    TOTAL SHORT-TERM INVESTMENTS (COST $66,549,864)     66,577,243    
        TOTAL INVESTMENTS — 100.1%
(Cost $2,100,107,893)		     1,987,194,310    
        Other Assets and Liabilities (net) — (0.1%)     (1,465,740 )  
    TOTAL NET ASSETS — 100.0%   $ 1,985,728,570    

 

See accompanying notes to the financial statements.


13


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  749     S&P 500 E-Mini Index   September 2009   $ 38,187,765     $ 2,311,534    

 

As of August 31, 2009, 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.


14



GMO U.S. Core Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $2,100,107,893) (Note 2)   $ 1,987,194,310    
Receivable for Fund shares sold     67,816    
Dividends and interest receivable     5,301,221    
Receivable for collateral on open futures contracts (Note 2)     3,370,500    
Receivable for expenses reimbursed by Manager (Note 3)     34,751    
Total assets     1,995,968,598    
Liabilities:  
Payable for investments purchased     2,967,575    
Payable for Fund shares repurchased     6,074,145    
Payable to affiliate for (Note 3):  
Management fee     514,318    
Shareholder service fee     153,527    
Administration fee – Class M     213    
Trustees and Chief Compliance Officer of GMO Trust fees     3,954    
Payable for 12b-1 fee – Class M     523    
Payable for variation margin on open futures contracts (Note 2)     288,365    
Accrued expenses     237,408    
Total liabilities     10,240,028    
Net assets   $ 1,985,728,570    

 

See accompanying notes to the financial statements.


15


GMO U.S. Core Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 2,930,383,653    
Accumulated undistributed net investment income     6,052,865    
Accumulated net realized loss     (840,105,899 )  
Net unrealized depreciation     (110,602,049 )  
    $ 1,985,728,570    
Net assets attributable to:  
Class III shares   $ 584,899,762    
Class IV shares   $ 365,910,901    
Class VI shares   $ 1,033,645,201    
Class M shares   $ 1,272,706    
Shares outstanding:  
Class III     59,673,866    
Class IV     37,416,651    
Class VI     105,714,275    
Class M     129,906    
Net asset value per share:  
Class III   $ 9.80    
Class IV   $ 9.78    
Class VI   $ 9.78    
Class M   $ 9.80    

 

See accompanying notes to the financial statements.


16


GMO U.S. Core Equity Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $4,773)   $ 22,284,096    
Interest     35,760    
Total investment income     22,319,856    
Expenses:  
Management fee (Note 3)     2,762,376    
Shareholder service fee – Class III (Note 3)     429,079    
Shareholder service fee – Class IV (Note 3)     169,757    
Shareholder service fee – Class VI (Note 3)     239,000    
12b-1 fee – Class M (Note 3)     1,834    
Administration fee – Class M (Note 3)     1,467    
Custodian, fund accounting agent and transfer agent fees     163,668    
Legal fees     34,868    
Audit and tax fees     31,832    
Trustees fees and related expenses (Note 3)     18,133    
Registration fees     14,352    
Miscellaneous     14,352    
Total expenses     3,880,718    
Fees and expenses reimbursed by Manager (Note 3)     (250,608 )  
Expense reductions (Note 2)     (1,017 )  
Net expenses     3,629,093    
Net investment income (loss)     18,690,763    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (225,033,943 )  
Closed futures contracts     (3,681,149 )  
Net realized gain (loss)     (228,715,092 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     644,696,330    
Open futures contracts     7,291,235    
Net unrealized gain (loss)     651,987,565    
Net realized and unrealized gain (loss)     423,272,473    
Net increase (decrease) in net assets resulting from operations   $ 441,963,236    

 

See accompanying notes to the financial statements.


17


GMO U.S. Core Equity Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 18,690,763     $ 49,233,468    
Net realized gain (loss)     (228,715,092 )     (579,585,591 )  
Change in net unrealized appreciation (depreciation)     651,987,565       (503,529,996 )  
Net increase (decrease) in net assets from operations     441,963,236       (1,033,882,119 )  
Distributions to shareholders from:  
Net investment income  
Class III     (6,242,898 )     (13,415,542 )  
Class IV     (3,814,940 )     (7,250,680 )  
Class VI     (9,766,759 )     (29,721,224 )  
Class M     (15,450 )     (406,196 )  
Total distributions from net investment income     (19,840,047 )     (50,793,642 )  
Net share transactions (Note 7):  
Class III     (63,640,388 )     (333,388,149 )  
Class IV     (2,277,427 )     (29,109,705 )  
Class VI     (24,994,979 )     (550,731,373 )  
Class M     (890,513 )     (44,651,124 )  
Increase (decrease) in net assets resulting from net share
transactions		     (91,803,307 )     (957,880,351 )  
Total increase (decrease) in net assets     330,319,882       (2,042,556,112 )  
Net assets:  
Beginning of period     1,655,408,688       3,697,964,800    
End of period (including accumulated undistributed net investment
income of $6,052,865 and $7,202,149, respectively)		   $ 1,985,728,570     $ 1,655,408,688    

 

See accompanying notes to the financial statements.


18



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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 7.65     $ 12.05     $ 14.77     $ 14.50     $ 14.28     $ 13.54    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.09       0.18       0.22       0.22       0.24       0.19    
Net realized and unrealized
gain (loss)		     2.16       (4.40 )     (1.10 )     0.64       0.54       0.73    
Total from investment
operations		     2.25       (4.22 )     (0.88 )     0.86       0.78       0.92    
Less distributions to shareholders:  
From net investment income     (0.10 )     (0.18 )     (0.25 )     (0.22 )     (0.24 )     (0.18 )  
From net realized gains     —       —       (1.59 )     (0.37 )     (0.32 )     —    
Total distributions     (0.10 )     (0.18 )     (1.84 )     (0.59 )     (0.56 )     (0.18 )  
Net asset value, end of
period		   $ 9.80     $ 7.65     $ 12.05     $ 14.77     $ 14.50     $ 14.28    
Total Return(a)      29.57 %**      (35.39 )%     (7.33 )%     5.97 %     5.60 %     6.89 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 584,900     $ 509,120     $ 1,131,800     $ 1,789,872     $ 2,841,959     $ 1,739,392    
Net expenses to average
daily net assets		     0.46 %(b)*      0.46 %(b)      0.46 %(b)      0.46 %     0.47 %     0.48 %  
Net investment income to
average daily net assets		     2.04 %*      1.70 %     1.55 %     1.51 %     1.69 %     1.46 %  
Portfolio turnover rate     26 %**      62 %     71 %     78 %     65 %     65 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.03 %*      0.02 %     0.02 %     0.02 %     0.02 %     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.

(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.


19


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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 7.63     $ 12.02     $ 14.75     $ 14.48     $ 14.26     $ 13.52    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.09       0.19       0.22       0.22       0.25       0.20    
Net realized and unrealized
gain (loss)		     2.16       (4.39 )     (1.10 )     0.65       0.54       0.73    
Total from investment
operations		     2.25       (4.20 )     (0.88 )     0.87       0.79       0.93    
Less distributions to shareholders:  
From net investment income     (0.10 )     (0.19 )     (0.26 )     (0.23 )     (0.25 )     (0.19 )  
From net realized gains     —       —       (1.59 )     (0.37 )     (0.32 )     —    
Total distributions     (0.10 )     (0.19 )     (1.85 )     (0.60 )     (0.57 )     (0.19 )  
Net asset value, end of period   $ 9.78     $ 7.63     $ 12.02     $ 14.75     $ 14.48     $ 14.26    
Total Return(a)      29.68 %**      (35.36 )%     (7.36 )%     6.05 %     5.66 %     6.96 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 365,911     $ 286,333     $ 478,084     $ 602,048     $ 749,822     $ 866,206    
Net expenses to average daily
net assets		     0.41 %(b)*      0.41 %(b)      0.41 %(b)      0.41 %     0.43 %     0.44 %  
Net investment income to average
daily net assets		     2.09 %*      1.78 %     1.57 %     1.55 %     1.76 %     1.49 %  
Portfolio turnover rate     26 %**      62 %     71 %     78 %     65 %     65 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.03 %*      0.02 %     0.02 %     0.02 %     0.02 %     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.

(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)

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

    Six Months
Ended
August 31, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 7.63     $ 12.02     $ 14.75     $ 14.47     $ 14.26     $ 13.52    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.10       0.19       0.23       0.23       0.25       0.21    
Net realized and unrealized
gain (loss)		     2.15       (4.38 )     (1.11 )     0.65       0.54       0.72    
Total from investment
operations		     2.25       (4.19 )     (0.88 )     0.88       0.79       0.93    
Less distributions to shareholders:  
From net investment income     (0.10 )     (0.20 )     (0.26 )     (0.23 )     (0.26 )     (0.19 )  
From net realized gains     —       —       (1.59 )     (0.37 )     (0.32 )     —    
Total distributions     (0.10 )     (0.20 )     (1.85 )     (0.60 )     (0.58 )     (0.19 )  
Net asset value, end of
period		   $ 9.78     $ 7.63     $ 12.02     $ 14.75     $ 14.47     $ 14.26    
Total Return(a)      29.70 %**      (35.33 )%     (7.32 )%     6.17 %     5.64 %     7.01 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 1,033,645     $ 858,170     $ 2,031,659     $ 3,671,926     $ 2,543,300     $ 1,750,325    
Net expenses to average
daily net assets		     0.37 %(b)*      0.37 %(b)      0.37 %(b)      0.37 %     0.38 %     0.39 %  
Net investment income to
average daily net assets		     2.14 %*      1.78 %     1.63 %     1.61 %     1.78 %     1.56 %  
Portfolio turnover rate     26 %**      62 %     71 %     78 %     65 %     65 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.03 %*      0.02 %     0.02 %     0.02 %     0.02 %     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.

(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.


21


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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 7.65     $ 12.03     $ 14.75     $ 14.47     $ 14.26     $ 13.52    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.08       0.15       0.18       0.18       0.20       0.16    
Net realized and unrealized
gain (loss)		     2.16       (4.40 )     (1.11 )     0.64       0.53       0.72    
Total from investment
operations		     2.24       (4.25 )     (0.93 )     0.82       0.73       0.88    
Less distributions to shareholders:  
From net investment income     (0.09 )     (0.13 )     (0.20 )     (0.17 )     (0.20 )     (0.14 )  
From net realized gains     —       —       (1.59 )     (0.37 )     (0.32 )     —    
Total distributions     (0.09 )     (0.13 )     (1.79 )     (0.54 )     (0.52 )     (0.14 )  
Net asset value, end of period   $ 9.80     $ 7.65     $ 12.03     $ 14.75     $ 14.47     $ 14.26    
Total Return(a)      29.44 %**      (35.61 )%     (7.64 )%     5.73 %     5.22 %     6.61 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,273     $ 1,786     $ 56,422     $ 131,640     $ 157,009     $ 171,316    
Net expenses to average daily
net assets		     0.76 %(b)*      0.76 %(b)      0.76 %(b)      0.76 %     0.77 %     0.78 %  
Net investment income to average
daily net assets		     1.84 %*      1.29 %     1.23 %     1.22 %     1.41 %     1.17 %  
Portfolio turnover rate     26 %**      62 %     71 %     78 %     65 %     65 %  
Fees and expenses reimbursed by
the Manager to average daily
net assets:		     0.03 %*      0.02 %     0.02 %     0.02 %     0.02 %     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.

(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.


22



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO U.S. Core Equity Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the S&P 500 Index. The Fund typically makes equity investments in companies that issue stocks included in the S&P 500 Index, a U.S. stock index, and in companies with similar market capitalizations. Under normal circumstances, the Fund invests at least 80% of its assets in equity investments (which include common stocks and other stock-related securities, such as preferred stocks, convertible securities, and depository receipts) tied economically to the U.S. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange- traded and over-the counter derivatives, including options, futures, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

Throughout the period ended August 31, 2009, 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 they bear.

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.


23


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

Asset Valuation Inputs   Investments
in Securities		   Other Financial
Instruments*		  
Level 1 - Quoted Prices   $ 1,940,586,047     $ 2,311,534    
Level 2 - Other Significant Observable Inputs     46,608,263       —    
Level 3 - Significant Unobservable Inputs     —       —    
Total   $ 1,987,194,310     $ 2,311,534    

 

*  Other financial instruments include futures contracts.


24


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

All of the Fund's common stocks are classified as Level 1. Please refer to the Schedule of Investments for a more detailed categorization of the common stocks. Money market funds are classified as Level 2, and other short-term investments are classified as Level 1.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, whose fair value was determined using Level 3 inputs.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. 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 various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset


25


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's e xposure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.


26


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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.


27


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $277,985,666.

As of February 28, 2009, 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:

2/28/2017   $ (253,190,292 )  
Total   $ (253,190,292 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 2,186,032,024     $ 78,431,261     $ (277,268,975 )   $ (198,837,714 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.


28


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 among the classes of shares of the Fund based on the relative net assets of each class. Shareholder service fees, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Market Risk — Value Securities — The Fund purchases some equity securities at prices below what the Manager believes to be their fundamental value. The Fund bears the risk that the price of these securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected).


29


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors and markets without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index).

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.


30


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


31


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (rights and
warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts* 		     —       —       —       2,311,534       —       2,311,534    
Unrealized appreciation on
forward currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 2,311,534     $ —     $ 2,311,534    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on
forward currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ —     $ —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


32


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (rights and warrants)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       (3,681,149 )     —       (3,681,149 )  
Swap contract     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ (3,681,149 )   $ —     $ (3,681,149 )  
    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (rights and warrants)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       7,291,235       —       7,291,235    
Swap contract     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ —     $ —     $ —     $ 7,291,235     $ —     $ 7,291,235    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures  
Average notional amount outstanding   $ 34,227,981    
Highest notional amount outstanding     44,419,100    
Lowest notional amount outstanding     —    

 


33


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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 of each class at the annual rate of 0.15% for Class III shares, 0.10% for Class IVshares and 0.055% for Class VI shares.

Holders of 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 net assets of Class M shares. Pursuant to a Rule 12b-1 distribution and service plan adopted by the Fund, holders of Class M shares of the Fund may pay a fee, at the annual rate of up to 1.00% of average daily net assets of Class M shares 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 net assets of Class M shares.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.31% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, administration fees, distribution (12b-1) fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an inve stment company (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.31% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.31% of the Fund's average daily net assets.

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, 2009 was $14,453 and $8,464, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.


34


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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, 2009 aggregated $455,760,644 and $532,886,968, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 19.40% 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.

As of August 31, 2009, 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 52.50% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,978,223     $ 16,947,769       10,238,738     $ 93,997,492    
Shares issued to shareholders
in reinvestment of distributions		     578,319       4,975,219       1,047,915       11,222,375    
Shares repurchased     (9,464,453 )     (85,563,376 )     (38,645,942 )     (438,608,016 )  
Net increase (decrease)     (6,907,911 )   $ (63,640,388 )     (27,359,289 )   $ (333,388,149 )  

 


35


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     3,975,963     $ 37,540,736       10,729,862     $ 87,517,393    
Shares issued to shareholders
in reinvestment of distributions		     444,467       3,814,941       656,519       6,901,870    
Shares repurchased     (4,533,716 )     (43,633,104 )     (13,623,143 )     (123,528,968 )  
Net increase (decrease)     (113,286 )   $ (2,277,427 )     (2,236,762 )   $ (29,109,705 )  
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     14,515,594     $ 134,616,506       39,043,308     $ 402,535,356    
Shares issued to shareholders
in reinvestment of distributions		     1,138,320       9,766,759       2,776,239       29,721,224    
Shares repurchased     (22,441,394 )     (169,378,244 )     (98,313,498 )     (982,987,953 )  
Net increase (decrease)     (6,787,480 )   $ (24,994,979 )     (56,493,951 )   $ (550,731,373 )  
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class M:   Shares   Amount   Shares   Amount  
Shares sold     —     $ —       10,515     $ 128,124    
Shares issued to shareholders
in reinvestment of distributions		     1,809       15,450       36,243       406,197    
Shares repurchased     (105,425 )     (905,963 )     (4,504,666 )     (45,185,445 )  
Net increase (decrease)     (103,616 )   $ (890,513 )     (4,457,908 )   $ (44,651,124 )  

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


36



GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In


37


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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, including the effect of recent market events and chan ges in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 facto rs, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


38


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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 15, 2009, 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, 2009.


39


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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.


40


GMO U.S. Core Equity Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2009 (Unaudited)

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

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.46 %   $ 1,000.00     $ 1,295.70     $ 2.66    
2) Hypothetical     0.46 %   $ 1,000.00     $ 1,022.89     $ 2.35    
Class IV  
1) Actual     0.41 %   $ 1,000.00     $ 1,296.80     $ 2.37    
2) Hypothetical     0.41 %   $ 1,000.00     $ 1,023.14     $ 2.09    
Class VI  
1) Actual     0.37 %   $ 1,000.00     $ 1,297.00     $ 2.14    
2) Hypothetical     0.37 %   $ 1,000.00     $ 1,023.34     $ 1.89    
Class M  
1) Actual     0.76 %   $ 1,000.00     $ 1,294.40     $ 4.40    
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, 2009, 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 Emerging Countries Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     81.9 %  
Investment Funds     8.4    
Preferred Stocks     6.6    
Short-Term Investments     1.8    
Other     1.3    
      100.0 %  
Country Summary   % of Equity Investments  
South Korea     17.6 %  
Russia     11.6    
Brazil     10.9    
China     9.4    
Taiwan     9.2    
Turkey     8.8    
United States     8.7    
India     5.6    
Thailand     4.9    
Poland     3.1    
Indonesia     2.2    
South Africa     2.0    
Malaysia     1.6    
Egypt     1.2    
Israel     0.8    
Mexico     0.7    
Philippines     0.5    
Czech Republic     0.4    
Chile     0.3    
Hungary     0.2    
Morocco     0.2    
Argentina     0.1    
Peru     0.0    
      100.0 %  

 


1


GMO Emerging Countries Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Industry Group Summary   % of Equity Investments  
Banks     18.0 %  
Energy     16.8    
Materials     11.5    
Miscellaneous     8.7    
Telecommunication Services     8.1    
Semiconductors & Semiconductor Equipment     6.2    
Capital Goods     6.0    
Technology Hardware & Equipment     4.5    
Software & Services     3.5    
Automobiles & Components     3.0    
Food, Beverage & Tobacco     2.6    
Utilities     2.4    
Diversified Financials     2.1    
Real Estate     1.1    
Transportation     1.0    
Retailing     0.8    
Media     0.8    
Consumer Durables & Apparel     0.7    
Food & Staples Retailing     0.5    
Pharmaceuticals, Biotechnology & Life Sciences     0.5    
Household & Personal Products     0.4    
Consumer Services     0.4    
Insurance     0.3    
Health Care Equipment & Services     0.1    
      100.0 %  

 


2



GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 81.9%  
        Argentina — 0.1%  
    5,060     Cresud SA Sponsored ADR     57,178    
    20,680     Petrobras Energia Participaciones SA Sponsored ADR *      137,108    
    Total Argentina     194,286    
        Brazil — 4.8%  
    18,730     Banco Bradesco Sponsored ADR     303,613    
    68,200     Banco do Brasil SA     946,629    
    99,400     BM&F BOVESPA SA     612,845    
    11,600     BRF-Brasil Foods SA *      258,503    
    10,000     Cia de Saneamento de Minas Gerais-Copasa MG     159,760    
    74,100     Companhia Brasileira de Meios de Pagamento     646,365    
    2,207     Companhia de Bebidas das Americas     141,481    
    20,809     Companhia Saneamento Basico Sao Paulo     383,123    
    8,400     Electrobras (Centro)     122,789    
    21,900     Empresa Brasileira de Aeronautica SA     117,593    
    9,100     Empresa Brasileira de Aeronautica SA Sponsored ADR     193,284    
    28,800     Gerdau SA     260,540    
    31,887     Investimentos Itau SA     185,431    
    32,400     Natura Cosmeticos SA     524,156    
    7,240     Petroleo Brasileiro SA (Petrobras)     144,170    
    33,950     Petroleo Brasileiro SA (Petrobras) ADR     1,345,778    
    33,900     Redecard SA     464,063    
    7,723     Souza Cruz SA     245,208    
    8,900     Tele Norte Leste Participacoes SA     166,742    
    8,525     Usinas Siderurgicas de Minas Gerais SA     201,014    
    52,200     Vale SA     1,015,916    
    15,930     Vale SA Sponsored ADR     306,015    
    Total Brazil     8,745,018    
        Chile — 0.3%  
    1,570     Banco Santander Chile SA ADR     80,337    
    4,430     Compania Cervecerias Unidas ADR     144,152    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Chile — continued  
    1,170     Embotelladora Andina SA ADR A Shares     16,988    
    2,100     Embotelladora Andina SA ADR B Shares     35,994    
    1,150     Enersis SA Sponsored ADR     19,907    
    17,560     Lan Airlines SA Sponsored ADR     208,086    
    Total Chile     505,464    
        China — 9.1%  
    258,000     Air China Ltd Class H *      152,010    
    3,258,000     Bank of China Ltd Class H     1,584,621    
    366,000     China Coal Energy Co Class H     466,308    
    272,000     China Communication Services Corp Ltd Class H     152,277    
    1,282,000     China Construction Bank Class H     966,148    
    126,597     China International Marine Containers Co Ltd Class B     122,470    
    203,250     China Merchants Bank Co Ltd Class H     443,097    
    86,664     China Mobile Ltd     850,952    
    20,032     China Mobile Ltd Sponsored ADR     985,975    
    128,000     China National Building Material Co Ltd Class H     269,582    
    470,000     China Oilfield Services Ltd Class H     408,592    
    899,083     China Petroleum & Chemical Corp Class H     753,207    
    116,000     China Resources Land Ltd     243,398    
    1,794,000     China Telecom Corp Ltd Class H     924,857    
    77,100     China Vanke Co Ltd Class B     89,525    
    196,149     Cosco Pacific Ltd     293,472    
    568,000     Denway Motors Ltd     256,551    
    628,000     Dongfeng Motor Group Co Ltd     652,034    
    168,000     Guangdong Investments Ltd     85,670    
    319,000     Huaneng Power International Inc Class H     222,701    
    2,246,000     Industrial and Commercial Bank of China Ltd Class H     1,533,316    
    98,000     Jiangxi Copper Co Ltd Class H     204,358    
    144,000     Kingboard Chemical Holdings Ltd     457,314    
    64,000     Lee & Man Paper Manufacturing Ltd     103,923    
    4,140     Netease.Com Inc ADR *      173,839    
    270,000     Parkson Retail Group Ltd     399,114    
    511,553     PetroChina Co Ltd Class H     564,773    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        China — continued  
    156,000     PICC Property & Casualty Co Ltd Class H *      97,985    
    8,660     Shanda Interactive Entertainment Ltd Sponsored ADR *      423,994    
    40,400     Shanghai Industrial Holdings Ltd     194,304    
    414,000     Shenzhen Investment Ltd     148,543    
    108,000     Shimao Property Holdings Ltd     160,399    
    3,760     Sina Corp *      112,800    
    340,000     Sino-Ocean Land Holdings Ltd     309,951    
    42,000     Tencent Holdings Ltd     626,648    
    42,000     Tingyi (Cayman Islands) Holding Corp     75,580    
    71,400     Yanlord Land Group Ltd     113,838    
    202,000     Yanzhou Coal Mining Co Ltd Class H     286,040    
    76,000     Zhaojin Mining Industry Co Ltd     108,268    
    202,000     Zhejiang Expressway Co Ltd Class H     192,687    
    458,000     Zijin Mining Group Co Ltd Class H     384,625    
    Total China     16,595,746    
        Czech Republic — 0.4%  
    4,960     CEZ AS     259,561    
    600     Komercni Banka AS     114,899    
    1,945     Pegas Nonwovens SA     49,427    
    256     Philip Morris CR AS     119,771    
    4,300     Telefonica 02 Czech Republic AS     119,418    
    7,920     Unipetrol AS *      58,666    
    Total Czech Republic     721,742    
        Egypt — 1.2%  
    9,612     Alexandria Mineral Oils Co     85,320    
    53,720     Commercial International Bank     525,828    
    22,800     EFG-Hermes Holding SAE     115,918    
    8,267     Egyptian Co for Mobile Services     323,800    
    440     El Ezz Aldekhela Steel Alexa Co     61,060    
    3,670     ElSwedy Cables Holding Co     53,354    
    4,400     Orascom Construction Industries     185,091    
    47,298     Orascom Telecom Holding SAE     309,016    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Egypt — continued  
    10,200     Oriental Weavers Co     60,901    
    43,927     Sidi Kerir Petrochemicals Co     91,399    
    69,100     Talaat Moustafa Group *      78,639    
    94,154     Telecom Egypt     315,153    
    Total Egypt     2,205,479    
        Hungary — 0.2%  
    80     Egis Gyogyszergyar Nyrt     8,398    
    580     MOL Hungarian Oil and Gas Nyrt *      45,607    
    10,700     OTP Bank Nyrt *      276,451    
    350     Richter Gedeon Nyrt     70,243    
    Total Hungary     400,699    
        India — 5.4%  
    10,500     Axis Bank Ltd     194,488    
    2,200     Bajaj Auto Ltd     54,874    
    19,686     Bank of Baroda     174,551    
    26,400     Bank of India     182,831    
    6,600     Bharat Heavy Electricals Ltd     312,195    
    38,470     Canara Bank Ltd     210,665    
    4,000     Grasim Industries Ltd     219,498    
    3,000     Hero Honda Motors Ltd     93,118    
    13,233     ICICI Bank Ltd     203,712    
    19,260     ICICI Bank Ltd Sponsored ADR     587,815    
    117,400     IFCI Ltd *      134,596    
    22,100     Infosys Technologies Ltd     964,838    
    13,940     Infosys Technologies Ltd Sponsored ADR     602,626    
    12,100     Jaiprakash Associates Ltd     56,051    
    11,524     Jindal Steel & Power Ltd     738,265    
    13,000     Kotak Mahindra Bank Ltd     190,786    
    8,000     Larsen & Toubro Ltd     256,341    
    9,011     Mahindra & Mahindra Ltd     159,669    
    18,100     Oil & Natural Gas Corp Ltd     440,998    
    20,500     Punjab National Bank Ltd     287,010    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        India — continued  
    43,600     Reliance Communications Ltd     232,453    
    16,200     Reliance Energy Ltd     379,360    
    6,300     Reliance Industries Ltd *      258,060    
    32,355     Satyam Computer Services Ltd     80,703    
    49,700     Sesa Goa Ltd     215,728    
    21,800     State Bank of India     779,663    
    82,430     Steel Authority of India Ltd     274,428    
    24,600     Sterlite Industries India Ltd     338,484    
    5,720     Sterlite Industries India Ltd ADR     76,591    
    56,000     Tata Consultancy Services Ltd     608,878    
    8,800     Tata Steel Ltd     76,493    
    31,763     Unitech Ltd     68,694    
    37,000     Wipro Ltd     417,441    
    Total India     9,871,903    
        Indonesia — 2.1%  
    171,000     Astra International Tbk PT     511,697    
    487,000     Bank Central Asia Tbk PT     205,098    
    83,000     Bank Danamon Indonesia Tbk PT     38,704    
    948,500     Bank Negara Indonesia (Persero) Tbk PT     182,462    
    580,500     Bank Rakyat Tbk PT     437,860    
    5,167,000     Bumi Resources Tbk PT     1,482,693    
    85,000     Gudang Garam Tbk PT     120,687    
    735,500     Indah Kiat Pulp and Paper Corp Tbk PT *      129,116    
    34,500     Indo Tambangraya Megah PT     83,548    
    218,500     International Nickel Indonesia Tbk PT *      91,615    
    954,000     Kalbe Farma Tbk PT     120,362    
    595,000     Perusahaan Gas Negara PT     205,276    
    27,000     Tambang Batubara Bukit Asam Tbk PT     34,828    
    215,000     Telekomunikasi Indonesia Tbk PT     178,004    
    371,500     Timah Tbk PT     76,464    
    Total Indonesia     3,898,414    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Israel — 0.8%  
    4,600     Africa Israel Properties Ltd *      73,592    
    83,630     Bank Hapoalim BM *      268,982    
    37,940     Bezeq Israeli Telecommunication Corp Ltd     79,279    
    990     Delek Group Ltd     165,176    
    850     Elbit Systems Ltd     55,265    
    18,980     Jerusalem Economy Ltd *      143,616    
    11,850     Teva Pharmaceutical Industries Ltd Sponsored ADR     610,275    
    Total Israel     1,396,185    
        Malaysia — 1.5%  
    90,121     Berjaya Sports Toto Berhad     109,472    
    8,499     British American Tobacco Malaysia Berhad     110,642    
    97,400     CIMB Group Holdings Berhad     273,897    
    63,800     Hong Leong Financial Group Berhad     94,092    
    88,600     IOI Corp Berhad     127,772    
    791,500     KNM Group Berhad     167,012    
    61,000     Kulim Malaysia Berhad     128,579    
    100,115     Lion Diversified Holdings     15,511    
    110,619     Lion Industries Corp Berhad     48,607    
    62,109     PPB Group Berhad     270,701    
    351,578     Resorts World Berhad     277,393    
    233,319     RHB Capital Berhad     312,227    
    174,680     Sime Darby Berhad     407,630    
    37,899     Tanjong Plc     164,620    
    132,400     Tenaga Nasional Berhad     300,506    
    Total Malaysia     2,808,661    
        Mexico — 0.7%  
    53,000     Alfa SA de CV Class A     231,578    
    7,770     America Movil SAB de CV Class L ADR     350,815    
    93,866     Cemex SA de CV CPO *      124,271    
    65,300     Consorcio ARA SAB de CV *      37,896    
    37,700     Controladora Comercial Mexicana SA de CV *      30,913    
    52,700     Corporacion GEO SA de CV Series B *      124,506    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Mexico — continued  
    64,700     Grupo Financiero Banorte SAB de CV Class O     190,841    
    47,974     Grupo Mexico SA Class B *      68,974    
    24,400     Sare Holding SA de CV Class B *      9,684    
    8,510     Telefonos de Mexico SAB de CV Class L Sponsored ADR     158,201    
    Total Mexico     1,327,679    
        Morocco — 0.2%  
    1,650     Attijariwafa Bank     57,706    
    139     Compagnie Generale Immobiliere     33,483    
    380     Credit Immobilier et Hotelier     19,331    
    9,659     Maroc Telecom     173,716    
    140     Societe Nationale De Siderurgie     40,087    
    Total Morocco     324,323    
        Peru — 0.0%  
    1,191     Compania Minera Milpo SA     2,902    
    378     Sociedad Minera Cerro Verde SA *      8,864    
    23,016     Volcan Compania Minera SA Class B *      21,657    
    Total Peru     33,423    
        Philippines — 0.5%  
    293,600     Alliance Global Group Inc *      30,591    
    82,300     Bank of the Philippine Islands     75,494    
    1,998,300     Benpres Holdings Corp *      150,774    
    564,900     Energy Development Corp     51,929    
    173,600     First Gen Corp *      76,234    
    57,700     First Philippine Holdings Corp *      49,462    
    28,600     Manila Electric Co     117,341    
    2,084,500     Megaworld Corp     68,749    
    4,680     Philippine Long Distance Telephone Co     240,454    
    745,600     Vista Land & Lifescapes Inc *      42,712    
    Total Philippines     903,740    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Poland — 3.0%  
    11,760     Asseco Poland SA     258,292    
    6,100     Bank Handlowy W Warszawie SA *      135,345    
    2,870     Bank Pekao SA *      146,455    
    23,650     Cyfrowy Polsat SA     130,637    
    58,600     Getin Holding SA *      182,148    
    30,300     Globe Trade Centre SA *      270,860    
    18,670     Grupa Lotos SA *      170,058    
    51,280     KGHM Polska Miedz SA     1,539,980    
    62,740     Polski Koncern Naftowy Orlen SA *      642,510    
    97,910     Polskie Gornictwo Naftowe I Gazownictwo SA     132,822    
    91,740     Powszechna Kasa Oszczednosci Bank Polski SA     1,132,147    
    15,840     Przedsiebiorstwo Eksportu i Importu Kopex SA *      125,111    
    63,530     Telekomunikacja Polska SA     358,186    
    38,390     TVN SA     192,244    
    Total Poland     5,416,795    
        Russia — 10.9%  
    63,740     Aeroflot - Russian Airlines     64,871    
    63,070     Cherepovets MK Severstal GDR (Registered Shares)     462,393    
    32,000     Gazprom Neft Class S     115,502    
    6,900     Gazprom Neft Sponsored ADR     122,742    
    66,940     KamAZ *      75,962    
    57,680     Lukoil Sponsored ADR     2,892,036    
    17,300     Magnit OJSC Sponsored GDR (Registered Shares)     198,258    
    25,200     Magnitogorsk Iron & Steel Works Sponsored GDR (Registered Shares) *      219,578    
    15,710     Mechel Sponsored ADR     191,819    
    76,100     MMC Norilsk Nickel JSC ADR *      837,039    
    45,140     Mobile Telesystems Sponsored ADR     1,958,173    
    22,000     NovaTek OAO Sponsored GDR (Registered Shares)     867,785    
    15,000     Novolipetsk Steel GDR (Registered Shares) *      356,607    
    317,944     OAO Gazprom Sponsored GDR     6,672,110    
    21,466     OAO Tatneft Sponsored GDR (Registered Shares)     532,039    
    6,600     Polyus Gold Sponsored ADR     132,468    
    172,100     Rosneft OJSC GDR     1,098,428    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Russia — continued  
    3,290     Rostelecom Sponsored ADR     99,424    
    6,085,690     RusHydro Class S *      212,999    
    289,960     Sberbank RF     432,738    
    200,400     Surgutneftegaz Sponsored ADR     1,708,436    
    20,180     Vimpelcom Sponsored ADR *      311,579    
    22,700     X5 Retail Group NV GDR (Registered Shares) *      436,025    
    Total Russia     19,999,011    
        South Africa — 1.9%  
    6,852     Absa Group Ltd     111,610    
    4,200     AngloGold Ashanti Ltd     161,047    
    36,167     Aveng Ltd     191,560    
    6,100     Exxaro Resources Ltd     72,407    
    106,400     FirstRand Ltd     217,254    
    29,400     Foschini Ltd     230,363    
    20,100     Harmony Gold Mining Co Ltd *      188,421    
    10,000     Highveld Steel and Vanadium Corp Ltd     97,669    
    15,400     Impala Platinum Holdings Ltd     359,971    
    33,300     JD Group Ltd     181,885    
    11,000     Naspers Ltd Class N     359,933    
    36,507     Remgro Ltd     403,677    
    12,700     Reunert Ltd     83,099    
    52,400     RMB Holdings Ltd     177,885    
    53,900     Telkom South Africa Ltd     300,632    
    11,424     Tiger Brands Ltd     228,157    
    14,600     Vodacom Group (Pty) Ltd *      108,099    
    Total South Africa     3,473,669    
        South Korea — 16.5%  
    260     Amorepacific Corp     151,490    
    25,660     Busan Bank     230,605    
    18,520     Daegu Bank     215,333    
    9,496     Daelim Industrial Co Ltd     547,013    
    16,100     Daewoo Securities Co Ltd     295,135    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued  
    13,610     Dongbu Insurance Co Ltd     412,968    
    5,030     Dongkuk Steel Mill Co Ltd     117,379    
    6,390     GS Engineering & Construction Corp     488,813    
    12,170     GS Holdings Corp     321,074    
    23,360     Hana Financial Group Inc     610,855    
    4,509     Hanjin Heavy Industries & Construction Co Ltd     99,448    
    39,930     Hanwha Chemical Corp     414,628    
    6,778     Honam Petrochemical Corp     508,183    
    470     Hyosung Corp     33,917    
    14,350     Hyundai Development Co     523,085    
    1,750     Hyundai Elevator Co Ltd     86,085    
    2,860     Hyundai Heavy Industries Co Ltd     435,462    
    4,165     Hyundai Mipo Dockyard     411,269    
    18,850     Hyundai Mobis     1,997,144    
    14,490     Hyundai Motor Co     1,228,166    
    8,770     Hyundai Securities Co Ltd     117,024    
    41,520     Industrial Bank of Korea *      447,870    
    9,010     INTOPS Co Ltd     136,515    
    24,570     Kangwon Land Inc     324,252    
    28,562     KB Financial Group Inc *      1,172,703    
    862     KB Financial Group Inc ADR *      35,144    
    8,970     Keangnam Enterprises Ltd *      121,018    
    25,880     Korea Exchange Bank     230,540    
    10,470     Korea Investment Holdings Co Ltd     299,457    
    4,470     Korea Zinc Co Ltd     487,571    
    4,220     KT Corp     131,460    
    20,330     KT Corp Sponsored ADR     316,538    
    23,663     KT&G Corp     1,274,415    
    4,666     LG Chem Ltd     703,041    
    7,690     LG Corp     467,661    
    14,130     LG Display Co Ltd     412,590    
    280     LG Household & Health Care Ltd     48,493    
    30,790     LG Telecom Ltd     192,176    
    2,550     Lotte Shopping Co Ltd     580,144    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        South Korea — continued  
    2,070     Mirae Asset Securities Co Ltd     120,810    
    3,120     NCSoft Corp     341,798    
    3,350     NHN Corp *      455,429    
    3,790     POSCO     1,390,739    
    2,110     POSCO ADR     192,981    
    44,090     Samho International Co Ltd *      168,972    
    7,588     Samsung Electronics Co Ltd     4,678,946    
    5,750     Samsung Engineering Co Ltd     373,023    
    2,900     Samsung Securities Co Ltd     173,379    
    6,140     Samsung Techwin Co Ltd     381,979    
    6,950     Seoul Semiconductor Co Ltd *      245,607    
    36,935     Shinhan Financial Group Co Ltd *      1,206,555    
    380     Shinsegae Co Ltd     157,418    
    2,470     SK Chemicals Co Ltd     119,817    
    6,555     SK Energy Co Ltd     526,552    
    12,677     SK Holdings Co Ltd     1,064,093    
    23,560     SK Networks Co Ltd     231,664    
    1,080     SK Telecom Co Ltd     150,948    
    42,590     SK Telecom Co Ltd ADR     662,700    
    7,430     STX Engine Co Ltd     142,857    
    16,430     STX Pan Ocean Co Ltd     145,718    
    14,550     Sungwoo Hitech Co Ltd     132,551    
    23,720     Tong Yang Securities Inc     307,839    
    14,431     Woori Finance Holdings Co Ltd *      161,910    
    Total South Korea     30,160,949    
        Taiwan — 9.0%  
    63,630     Asia Optical Co Inc     95,569    
    267,266     Asustek Computer Inc     424,557    
    422,080     AU Optronics Corp     420,361    
    66,500     Catcher Technology Co Ltd     171,457    
    444,000     Chi Mei Optoelectronics Corp *      217,433    
    651,014     China Steel Corp     590,426    
    1,166,000     Chinatrust Financial Holding Co Ltd     647,293    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Taiwan — continued  
    340,804     Chunghwa Telecom Co Ltd     583,563    
    350,299     Compal Electronics Inc     352,675    
    81,000     Epistar Corp     237,537    
    177,480     Far Eastern Textile Co Ltd     176,510    
    229,000     Far Eastone Telecommunications Co Ltd     258,236    
    53,757     First Financial Holding Co Ltd     29,084    
    425,500     Formosa Plastics Corp     764,259    
    1,224,000     HannStar Display Corp *      256,056    
    73,887     High Tech Computer Corp     741,622    
    478,638     Hon Hai Precision Industry Co Ltd     1,611,535    
    291,000     Hung Sheng Construction Co Ltd     110,734    
    183,340     Innolux Display Corp     204,857    
    435,009     Lite-On Technology Corp     486,769    
    408,591     Macronix International Co Ltd     194,019    
    145,375     MediaTek Inc     2,107,256    
    294,289     Nan Ya Plastics Corp     409,352    
    106,793     Novatek Microelectronics Corp Ltd     250,251    
    244,550     Pou Chen Corp     151,299    
    187,250     Powertech Technology Inc     510,685    
    2,050,000     ProMOS Technologies Inc *      72,866    
    434,715     Quanta Computer Inc     899,688    
    76,870     Radiant Opto-Electronics Corp     97,820    
    279,000     Siliconware Precision Industries Co     345,830    
    106,000     Sincere Navigation Corp     120,561    
    292,000     Synnex Technology International Corp     509,278    
    363,000     Taishin Financial Holding Co Ltd *      120,007    
    133,787     Taiwan Mobile Co Ltd     209,925    
    796,606     Taiwan Semiconductor Manufacturing Co Ltd     1,431,364    
    296,132     Wistron Corp     573,121    
    Total Taiwan     16,383,855    
        Thailand — 4.8%  
    344,690     Advanced Info Service Pcl (Foreign Registered) (a)      874,045    
    427,660     Asian Property Development Pcl (Foreign Registered) (a)      70,417    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Thailand — continued  
    87,450     Asian Property Development Pcl NVDR (a)      14,398    
    32,000     Bangkok Bank Pcl (a)      103,471    
    114,250     Bangkok Bank Pcl NVDR (a)      369,426    
    340,300     Bangkok Dusit Medical Service Pcl (Foreign Registered) (a)      248,263    
    21,690     Banpu Pcl (Foreign Registered) (a)      254,518    
    18,310     Banpu Pcl NVDR (a)      214,856    
    570,640     BEC World Pcl (Foreign Registered) (a)      313,835    
    90,000     Electricity Generating Pcl (Foreign Registered) (a)      208,377    
    18,000     Electricity Generating Pcl NVDR (a)      41,543    
    2,874,950     IRPC Pcl (Foreign Registered) (a)      324,773    
    238,010     Kasikornbank Pcl (Foreign Registered) (a)      527,919    
    102,770     Kasikornbank Pcl NVDR (a)      218,892    
    1,451,000     Krung Thai Bank Pcl (Foreign Registered) (a)      366,813    
    124,000     PTT Chemical Pcl (Foreign Registered) (a)      240,819    
    133,000     PTT Exploration & Production Pcl (Foreign Registered) (a)      541,863    
    250,722     PTT Pcl (Foreign Registered) (a)      1,799,118    
    62,039     Siam Cement Pcl (Foreign Registered) (a)      360,319    
    34,000     Siam Cement Pcl NVDR (a)      193,971    
    324,000     Siam City Bank Pcl (Foreign Registered) (a)      205,750    
    260,730     Siam Commercial Bank Pcl (Foreign Registered) (a)      590,005    
    19,420     Siam Commercial Bank Pcl NVDR (a)      43,945    
    382,770     Thai Oil Pcl (Foreign Registered) (a)      455,757    
    191,000     Thoresen Thai Agencies Pcl (Foreign Registered) (a)      129,730    
    Total Thailand     8,712,823    
        Turkey — 8.5%  
    189,838     Akbank TAS     1,091,072    
    50,240     Anadolu Efes Biracilik ve Malt Sanayii AS     548,806    
    83,394     Arcelik AS *      239,315    
    232,400     Asya Katilim Bankasi AS *      430,447    
    241,470     Dogan Sirketler Grubu Holdings AS *      226,567    
    47,074     Enka Insaat ve Sanayi AS     189,999    
    29,200     Gubre Fabrikalari TAS *      157,787    
      128,323     Haci Omer Sabanci Holding AS     496,622    

 

See accompanying notes to the financial statements.


15


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Turkey — continued  
    188,000     Kardemir Karabuk Demir Celik Sanayi ve Ticaret AS Class A *      102,851    
    567,780     Kardemir Karabuk Demir Celik Sanayi ve Ticaret AS Class D *      235,147    
    432,070     KOC Holding AS *      1,148,213    
    131,075     Sekerbank TAS *      212,859    
    37,084     Tupras-Turkiye Petrol Rafineriler AS     556,242    
    178,590     Turk Ekonomi Bankasi AS *      217,343    
    285,350     Turk Hava Yollari Anonim Ortakligi     548,519    
    176,004     Turk Sise ve Cam Fabrikalari AS *      186,637    
    133,380     Turk Telekomunikasyon AS     407,308    
    213,087     Turkcell Iletisim Hizmet AS     1,379,292    
    927,590     Turkiye Garanti Bankasi *      3,433,206    
    142,960     Turkiye Halk Bankasi AS     772,789    
    258,087     Turkiye IS Bankasi Class C     1,023,824    
    255,370     Turkiye Sinai Kalkinma Bankasi AS *      212,755    
    383,070     Turkiye Vakiflar Bankasi TAO Class D *      847,988    
    163,700     Vestel Elektronik Sanayi AS *      252,255    
    301,500     Yapi ve Kredi Bankasi AS *      635,835    
    Total Turkey     15,553,678    
    TOTAL COMMON STOCKS (COST $128,637,175)     149,633,542    
    PREFERRED STOCKS — 6.6%      
        Brazil — 5.8%  
    54,800     Banco Bradesco SA 0.57%     894,095    
    18,800     Centrais Eletricas Brasileiras SA Class B 6.90%     246,883    
    10,239     Companhia de Bebidas das Americas 1.04%     766,010    
    25,441     Companhia Energetica de Minas Gerais 2.79%     374,589    
    20,900     Companhia Paranaense de Energia Class B 0.45%     325,249    
    31,900     Duratex SA 1.25%     486,954    
    9,800     Eletropaulo Metropolitana SA 5.67%     181,836    
    14,300     Fertilizantes Fosfatados SA *      133,918    
    21,800     Gerdau Metalurgica SA 1.48%     319,476    
    33,308     Gerdau SA 0.74%     389,863    

 

See accompanying notes to the financial statements.


16


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        Brazil — continued  
    14,767     Itau Unibanco Holding SA 0.42%     250,570    
    90,660     Itausa-Investimentos Itau SA 0.59%     465,638    
    17,905     Net Servicos de Comunicacoa SA *      188,389    
    97,924     Petroleo Brasileiro SA (Petrobras) 1.11%     1,630,421    
    31,610     Petroleo Brasileiro SA Sponsored ADR 1.14%     1,049,452    
    12,280     Tele Norte Leste Participacoes ADR 6.99%     195,743    
    10,300     Tele Norte Leste Participacoes SA 7.08%     165,045    
    5,500     Telecomunicacoes de Sao Paulo SA 4.48%     126,914    
    3,400     Telemar Norte Leste SA Class A 7.14%     93,267    
    24,500     Usinas Siderrurgicas de Minas Gerais SA Class A 1.14%     575,874    
    75,656     Vale SA Preference A 2.87%     1,320,678    
    21,930     Vale SA Sponsored ADR 2.83%     377,415    
    Total Brazil     10,558,279    
        Russia — 0.3%  
    890     Transneft 1.20%     572,217    
        South Korea — 0.5%  
    6,110     Hyundai Motor Co 1.98%     213,798    
    1,990     Samsung Electronics Co Ltd (Non Voting) 1.15%     782,425    
    Total South Korea     996,223    
    TOTAL PREFERRED STOCKS (COST $9,838,490)     12,126,719    
    INVESTMENT FUNDS — 8.4%      
        United States — 8.4%  
    436,116     iShares MSCI Emerging Markets Index Fund (b)      15,399,256    
    TOTAL INVESTMENT FUNDS (COST $13,791,177)     15,399,256    

 

See accompanying notes to the financial statements.


17


GMO Emerging Countries Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value   Description   Value ($)  
    SHORT-TERM INVESTMENTS — 1.8%      
USD     40,864     Bank of Ireland Time Deposit, 0.03%, due 09/01/09     40,864    
USD     1,100,000     BNP Paribas Time Deposit, 0.18%, due 09/01/09     1,100,000    
ZAR     4,189     Brown Brothers Harriman Time Deposit, 6.15%, due 09/01/09     547    
USD     2,100,000     Societe Generale Time Deposit, 0.13%, due 09/01/09     2,100,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $3,241,411)     3,241,411    
            TOTAL INVESTMENTS — 98.7%
(Cost $155,508,253)		     180,400,928    
            Other Assets and Liabilities (net) — 1.3%     2,411,268    
    TOTAL NET ASSETS — 100.0%   $ 182,812,196    

 

Notes to Schedule of Investments:

ADR - American Depositary Receipt

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

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

GDR - Global Depository Receipt

NVDR - Non-Voting Depository Receipt

*  Non income-producing security.

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

(b)  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.

Currency Abbreviations:

USD - United States Dollar

ZAR - South African Rand

See accompanying notes to the financial statements.


18



GMO Emerging Countries Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $155,508,253) (Note 2)   $ 180,400,928    
Cash     1,603,543    
Foreign currency, at value (cost $430,282) (Note 2)     430,132    
Receivable for investments sold     56,003    
Receivable for Fund shares sold     54,664    
Dividends and interest receivable     688,613    
Foreign taxes receivable     235,223    
Receivable for expenses reimbursed by Manager (Note 3)     14,640    
Miscellaneous receivable     126,879    
Total assets     183,610,625    
Liabilities:  
Payable for investments purchased     165,175    
Payable for Fund shares repurchased     72,511    
Payable to affiliate for (Note 3):  
Management fee     101,541    
Shareholder service fee     19,580    
Administration fee – Class M     5,137    
Trustees and Chief Compliance Officer of GMO Trust fees     289    
Payable for 12b-1 fee – Class M     12,315    
Payable for foreign currency purchased     152    
Miscellaneous payable     71,289    
Accrued expenses     350,440    
Total liabilities     798,429    
Net assets   $ 182,812,196    

 

See accompanying notes to the financial statements.


19


GMO Emerging Countries Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 252,156,617    
Accumulated undistributed net investment income     1,812,369    
Accumulated net realized loss     (96,048,872 )  
Net unrealized appreciation     24,892,082    
    $ 182,812,196    
Net assets attributable to:  
Class III shares   $ 152,780,537    
Class M shares   $ 30,031,659    
Shares outstanding:  
Class III     18,033,368    
Class M     3,594,067    
Net asset value per share:  
Class III   $ 8.47    
Class M   $ 8.36    

 

See accompanying notes to the financial statements.


20


GMO Emerging Countries Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $330,093)   $ 2,800,119    
Interest     51,888    
Total investment income     2,852,007    
Expenses:  
Management fee (Note 3)     503,212    
Shareholder service fee – Class III (Note 3)     96,341    
12b-1 fee – Class M (Note 3)     32,967    
Administration fee – Class M (Note 3)     26,379    
Custodian and fund accounting agent fees     465,584    
Audit and tax fees     41,860    
Transfer agent fees     26,680    
Registration fees     13,064    
Legal fees     3,956    
Trustees fees and related expenses (Note 3)     1,535    
Miscellaneous     2,115    
Total expenses     1,213,693    
Fees and expenses reimbursed by Manager (Note 3)     (276,503 )  
Expense reductions (Note 2)     (5 )  
Net expenses     937,185    
Net investment income (loss)     1,914,822    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments (net of foreign capital gains tax of $13,330) (Note 2)     (10,799,225 )  
Foreign currency, forward contracts and foreign currency related transactions     13,160    
Net realized gain (loss)     (10,786,065 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     81,822,078    
Foreign currency, forward contracts and foreign currency related transactions     43,546    
Net unrealized gain (loss)     81,865,624    
Net realized and unrealized gain (loss)     71,079,559    
Net increase (decrease) in net assets resulting from operations   $ 72,994,381    

 

See accompanying notes to the financial statements.


21


GMO Emerging Countries Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,914,822     $ 5,729,375    
Net realized gain (loss)     (10,786,065 )     (79,155,727 )  
Change in net unrealized appreciation (depreciation)     81,865,624       (130,209,210 )  
Net increase (decrease) in net assets from operations     72,994,381       (203,635,562 )  
Distributions to shareholders from:  
Net investment income  
Class III     (50,056 )     (3,618,944 )  
Class M     (2,891 )     (355,007 )  
Total distributions from net investment income     (52,947 )     (3,973,951 )  
Net realized gains  
Class III     (400,445 )     (45,733,749 )  
Class M     (80,952 )     (3,890,739 )  
Total distributions from net realized gains     (481,397 )     (49,624,488 )  
      (534,344 )     (53,598,439 )  
Net share transactions (Note 7):  
Class III     2,933,948       (62,229,331 )  
Class M     (3,431,971 )     27,387,567    
Increase (decrease) in net assets resulting from net share
transactions		     (498,023 )     (34,841,764 )  
Total increase (decrease) in net assets     71,962,014       (292,075,765 )  
Net assets:  
Beginning of period     110,850,182       402,925,947    
End of period (including accumulated undistributed net investment
income of $1,812,369 and distributions in excess of net
investment income of $49,506, respectively)		   $ 182,812,196     $ 110,850,182    

 

See accompanying notes to the financial statements.


22



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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 5.06     $ 15.26     $ 16.04     $ 19.20     $ 15.99     $ 14.99    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.09       0.24       0.23       0.32       0.28       0.30    
Net realized and unrealized
gain (loss)		     3.34       (8.10 )     4.87       2.50       5.09       3.43    
Total from investment
operations		     3.43       (7.86 )     5.10       2.82       5.37       3.73    
Less distributions to shareholders:  
From net investment income     (0.00 )(a)      (0.22 )     (0.30 )     (0.36 )     (0.35 )     (0.31 )  
From net realized gains     (0.02 )     (2.12 )     (5.58 )     (5.62 )     (1.81 )     (2.42 )  
Total distributions     (0.02 )     (2.34 )     (5.88 )     (5.98 )     (2.16 )     (2.73 )  
Net asset value, end of period   $ 8.47     $ 5.06     $ 15.26     $ 16.04     $ 19.20     $ 15.99    
Total Return     67.97 %(b)**      (58.58 )%(b)      30.68 %(b)      16.20 %     36.38 %(b)      28.76 %(b)   
Ratios/Supplemental Data:  
Net assets,
end of period (000's)		   $ 152,781     $ 89,902     $ 371,540     $ 339,268     $ 346,018     $ 249,005    
Net expenses to average daily
net assets		     1.16 %(c)*      1.16 %(d)      1.11 %(d)      1.06 %     1.10 %     1.10 %  
Net investment income to
average daily net assets		     2.52 %*      2.25 %     1.31 %     1.74 %     1.68 %     2.12 %  
Portfolio turnover rate     74 %**      128 %     72 %     58 %     35 %     53 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.36 %*      0.14 %     0.03 %     —       0.01 %     0.05 %  

 

(a)  Distributions from net investment income were 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.

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

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

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


23


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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value,
beginning of period		   $ 5.00     $ 15.07     $ 15.90     $ 19.05     $ 15.87     $ 14.91    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.08       0.16       0.18       0.30       0.27       0.26    
Net realized and unrealized
gain (loss)		     3.30       (7.92 )     4.82       2.44       5.00       3.39    
Total from investment
operations		     3.38       (7.76 )     5.00       2.74       5.27       3.65    
Less distributions to shareholders:  
From net investment income     (0.00 )(a)      (0.19 )     (0.25 )     (0.27 )     (0.28 )     (0.27 )  
From net realized gains     (0.02 )     (2.12 )     (5.58 )     (5.62 )     (1.81 )     (2.42 )  
Total distributions     (0.02 )     (2.31 )     (5.83 )     (5.89 )     (2.09 )     (2.69 )  
Net asset value, end of period   $ 8.36     $ 5.00     $ 15.07     $ 15.90     $ 19.05     $ 15.87    
Total Return     67.74 %(b)**      (58.67 )%(b)      30.29 %(b)      15.89 %     35.99 %(b)      28.30 %(b)   
Ratios/Supplemental Data:  
Net assets,
end of period (000's)		   $ 30,032     $ 20,948     $ 31,386     $ 29,423     $ 57,136     $ 69,109    
Net expenses to average daily
net assets		     1.46 %(c)*      1.48 %(d)      1.41 %(d)      1.36 %     1.39 %     1.40 %  
Net investment income to
average daily net assets		     2.23 %*      1.68 %     0.99 %     1.63 %     1.65 %     1.82 %  
Portfolio turnover rate     74 %**      128 %     72 %     58 %     35 %     53 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.36 %*      0.23 %     0.03 %     —       0.01 %     0.05 %  

 

(a)  Distributions from net investment income were 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.

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

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

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


24



GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Emerging Countries Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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/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"). Under normal circumstances, the Fund invests at least 80% of its assets in investments tied economically to emerging countries. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the-counter derivatives (including options, futures, warrants, and swap contracts) and may invest in exchange-traded funds ("ETFs"). The Fund has entere d into an agreement with ETFs that allows the Fund to invest in an ETF beyond 1940 Act statutory limitations, provided that the Fund complies with the terms and conditions of the relevant ETF's exemptive order. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

Throughout the period ended August 31, 2009, 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 they bear.

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.


25


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 66.57% of the net assets of the Fund were valued using fair value prices base d on models used by a third party vendor and are classified as using Level 2 inputs in the table below.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund's securities in Thailand were valued at the local price and subject to a premium adjustment upon exceeding foreign ownership limitations.


26


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Common Stocks  
Argentina   $ 194,286     $ —     $ —     $ 194,286    
Brazil     8,745,018       —       —       8,745,018    
Chile     505,464       —       —       505,464    
China     1,696,608       14,899,138       —       16,595,746    
Czech Republic     —       721,742       —       721,742    
Egypt     2,205,479       —       —       2,205,479    
Hungary     —       400,699       —       400,699    
India     1,267,032       8,604,871       —       9,871,903    
Indonesia     —       3,898,414       —       3,898,414    
Israel     610,275       785,910       —       1,396,185    
Malaysia     —       2,808,661       —       2,808,661    
Mexico     1,327,679       —       —       1,327,679    
Morocco     —       324,323       —       324,323    
Peru     33,423       —       —       33,423    
Philippines     51,929       851,811       —       903,740    
Poland     —       5,416,795       —       5,416,795    
Russia     2,759,253       17,239,758       —       19,999,011    
South Africa     108,099       3,365,570       —       3,473,669    
South Korea     1,207,363       28,953,586       —       30,160,949    
Taiwan     72,866       16,310,989       —       16,383,855    
Thailand     —       —       8,712,823       8,712,823    
Turkey     —       15,553,678       —       15,553,678    
TOTAL COMMON STOCKS     20,784,774       120,135,945       8,712,823       149,633,542    
Preferred Stocks  
Brazil     10,558,279       —       —       10,558,279    
Russia     —       572,217       —       572,217    
South Korea     —       996,223       —       996,223    
TOTAL PREFERRED STOCKS     10,558,279       1,568,440       —       12,126,719    
Investment Funds  
United States     15,399,256       —       —       15,399,256    
TOTAL INVESTMENT FUNDS     15,399,256       —       —       15,399,256    
Short-Term Investments     3,241,411       —       —       3,241,411    
Total   $ 49,983,720     $ 121,704,385     $ 8,712,823     $ 180,400,928    

 


27


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The aggregate net value of the Fund's direct investments in securities using Level 3 inputs was 4.77% of total net assets.

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

    Balances
as of
February 28,
2009		   Net
Purchase/
Sales		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/Loss		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Common Stock  
Thailand   $ 5,352,748     $ 1,400,038     $ —     $ (1,432,837 )   $ 3,392,874     $ —     $ 8,712,823    
Total   $ 5,352,748     $ 1,400,038     $ —     $ (1,432,837 )   $ 3,392,874     $ —     $ 8,712,823    

 

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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.


28


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign futures 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 futures using fair value prices, which are based on adjustments to closing prices supplied by a thir d party vendor based on that vendor's proprietary models. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying


29


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the option. In the event that the Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations.


30


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exposure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to


31


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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 certain countries in which it invests. The accrual for capital gains and repatriation taxes is included in net unrealized gain (loss) in the Statement of Operations. For the period ended August 31, 2009, the Fund incurred $13,330 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, which must be paid by the Fund upon the sale or transfer of any portfolio securities subject to that tax.


32


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $72,060,837.

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 166,899,296     $ 20,118,349     $ (6,616,717 )   $ 13,501,632    

 

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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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


33


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

for inflation and any increase or decrease is recorded as interest income or investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 among the classes of shares of the Fund based on the relative net assets of each class. Shareholder service fees, 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets (e.g. Brazil, India, Russia, South Korea, and Taiwan). Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the econom ies of developed countries.


34


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. These risks are particularly pronounced for the Fund because it typically makes equity investments in companies in emerging countries and may make investments in companies with smaller market capitalizations. In addition, the Fund may buy securities that are less liquid than those in its benchmark.

• Smaller Company Risk — The securities of companies with smaller market capitalizations typically are less widely held, trade less frequently and in lesser quantities, and have market prices that may fluctuate more than those of securities of larger capitalization companies. The Fund may buy securities that have smaller market capitalizations than those in its benchmark.

Other principal risks of an investment in the Fund include Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Focused Investment Risk (increased risk from the Fund's focus on investments in a limited number of countries and geographic regions), Market Risk — Value Securities (risk that the price of the Fund's securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds (including ETFs) in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates,


35


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index). The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a


36


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterparties may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


37


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^  
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (rights
and warrants)		   $ —       —       —       —       —     $ —    
Unrealized appreciation on
futures contracts*		     —       —       —       —       —       —    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —       —       —       —       —     $ —    
Liabilities:  
Written options outstanding   $ —       —       —       —       —     $ —    
Unrealized depreciation on
futures contracts*		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —       —       —       —       —     $ —    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


38


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^  
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (rights and warrants)   $ —       —       —       —       —     $ —    
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       22,966       —       —       —       22,966    
Total   $ —       22,966       —       —       —     $ 22,966    
Change in Unrealized
Appreciation
(Depreciation) on:		  
Investments (rights and warrants)   $ —       —       —       18,679       —     $ 18,679    
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       (32,067 )     —       —       —       (32,067 )  
Total   $ —       (32,067 )     —       18,679       —     $ (13,388 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Rights/Warrants  
Average notional amount outstanding   $ 369,268     $ 9,216    
Highest notional amount outstanding     1,662,284       30,932    
Lowest notional amount outstanding     —       —    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee is paid monthly at the annual rate of 0.65% of average daily net assets. The Fund has adopted a Shareholder Service Plan


39


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

underwhich 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.

Holders of 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 net assets of Class M shares. Pursuant to a Rule 12b-1 distribution and service plan adopted by the Fund, holders of Class M shares of the Fund may pay a fee, at the annual rate of up to 1.00% of average daily net assets of Class M shares 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 net assets of Class M shares.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 1.00% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, administration fees, distribution (12b-1) fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (in cluding an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 1.00% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 1.00% of the Fund's average daily net assets.

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, 2009 was $1,167 and $644, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $109,752,730 and $111,793,594, respectively.


40


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 64.97% 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.

As of August 31, 2009, 0.12% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 2.62% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,818,660     $ 13,104,024       8,395,532     $ 66,791,311    
Shares issued to shareholders
in reinvestment of distributions		     57,294       419,962       4,479,699       46,605,889    
Shares repurchased     (1,599,303 )     (10,590,038 )     (19,463,147 )     (175,626,531 )  
Net increase (decrease)     276,651     $ 2,933,948       (6,587,916 )   $ (62,229,331 )  

 


41


GMO Emerging Countries Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class M:   Shares   Amount   Shares   Amount  
Shares sold     243,074     $ 1,718,718       6,833,888     $ 59,787,842    
Shares issued to shareholders
in reinvestment of distributions		     11,596       83,843       433,569       4,245,746    
Shares repurchased     (850,364 )     (5,234,532 )     (5,160,510 )     (36,646,021 )  
Net increase (decrease)     (595,694 )   $ (3,431,971 )     2,106,947     $ 27,387,567    

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


42



GMO Emerging Countries Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered information provided by the Manager addressing the Fund's performance, including a performance attribution analysis. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those p ersonnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.


43


GMO Emerging Countries Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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 accoun t 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, including the effect of recent market events and changes in assets under management and revenues on such profits. 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 b y, for example, 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 in which it invests. 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.


44


GMO Emerging Countries Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


45


GMO Emerging Countries Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     1.16 %   $ 1,000.00     $ 1,679.70     $ 7.84    
2) Hypothetical     1.16 %   $ 1,000.00     $ 1,019.36     $ 5.90    
Class M      
1) Actual     1.46 %   $ 1,000.00     $ 1,677.40     $ 9.85    
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, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


46



GMO U.S. Treasury Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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 will be available on Trust's website at www.gmo.com and on the Securities and Exchange Commission's website at www.sec.gov no later than August 31 of each year.

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. Treasury Fund

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Short-Term Investments     100.0 %  
Other     0.0    
      100.0 %  

 


1



GMO U.S. Treasury Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
      SHORT-TERM INVESTMENTS — 100.0%        
      Money Market Funds — 0.0%        
  16,655     State Street Institutional Treasury Plus Money Market Fund-Institutional Class     16,655    
      Other Short-Term Investments — 100.0%        
  47,675,000     U.S. Treasury Bill, 0.17%, due 10/15/09 (a)      47,665,074    
  97,850,000     U.S. Treasury Bill, 0.17%-0.43% due 10/22/09 (a)      97,797,846    
  12,600,000     U.S. Treasury Bill, 0.13%, due 11/19/09 (a)      12,596,346    
  16,050,000     U.S. Treasury Bill, 0.14%, due 11/27/09 (a)      16,044,687    
  25,000,000     U.S. Treasury Bill, 0.14%, due 12/03/09 (a)      24,990,950    
  35,600,000     U.S. Treasury Bill, 0.16%, due 12/17/09 (a)      35,583,375    
    Total Other Short-Term Investments     234,678,278    
    TOTAL SHORT-TERM INVESTMENTS (COST $234,665,278)     234,694,933    
        TOTAL INVESTMENTS — 100.0%
(Cost $234,665,278)		     234,694,933    
        Other Assets and Liabilities (net) — 0.00%     31,408    
    TOTAL NET ASSETS — 100.0%   $ 234,726,341    

 

Notes to Schedule of Investments:

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

See accompanying notes to the financial statements.


2



GMO U.S. Treasury Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $234,665,278) (Note 2)   $ 234,694,933    
Receivable for investments sold     13,498,350    
Receivable for Fund shares sold     1,750,000    
Receivable for expenses reimbursed by Manager (Note 3)     24,296    
Total assets     249,967,579    
Liabilities:  
Payable for Fund shares repurchased     15,200,000    
Payable to affiliate for (Note 3):  
Management fee     16,856    
Trustees and Chief Compliance Officer of GMO Trust fees     861    
Dividend payable     1,415    
Accrued expenses     22,106    
Total liabilities     15,241,238    
Net assets   $ 234,726,341    
Net assets consist of:  
Paid-in capital   $ 234,588,981    
Accumulated net realized gain     107,705    
Net unrealized appreciation     29,655    
    $ 234,726,341    
Net assets   $ 234,726,341    
Shares outstanding:     9,384,067    
Net asset value per share:   $ 25.01    

 

See accompanying notes to the financial statements.


3


GMO U.S. Treasury Fund

(A Series of GMO Trust)

Statement of Operations — Period from March 17, 2009 (commencement of operations)
through August 31, 2009 (Unaudited)

Investment Income:  
Interest   $ 420,703    
Dividends     81    
Total investment income     420,784    
Expenses:  
Management fee (Note 3)     103,840    
Audit and tax fees     28,824    
Custodian, fund accounting agent and transfer agent fees     20,540    
Legal fees     8,608    
Trustees fees and related expenses (Note 3)     2,720    
Registration fees     1,588    
Miscellaneous     2,863    
Total expenses     168,983    
Fees and expenses reimbursed by Manager (Note 3)     (60,992 )  
Fees and expenses waived by Manager (Note 3)     (103,840 )  
Net expenses     4,151    
Net investment income (loss)     416,633    
Realized and unrealized gain (loss):  
Investments     107,705    
Change in net unrealized appreciation (depreciation) on investments     29,655    
Net realized and unrealized gain (loss)     137,360    
Net increase (decrease) in net assets resulting from operations   $ 553,993    

 

See accompanying notes to the financial statements.


4


GMO U.S. Treasury Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Period from
March 17, 2009
(commencement of operations)
through
August 31, 2009 (Unaudited)		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 416,633    
Net realized gain (loss)     107,705    
Change in net unrealized appreciation (depreciation)     29,655    
Net increase (decrease) in net assets from operations     553,993    
Distributions to shareholders from:  
Net investment income     (416,633 )  
      (416,633 )  
Net share transactions (Note 7):     234,588,981    
Total increase (decrease) in net assets     234,726,341    
Net assets:  
Beginning of period     —    
End of period   $ 234,726,341    

 

See accompanying notes to the financial statements.


5



GMO U.S. Treasury Fund

(A Series of GMO Trust)

Financial Highlights
(For a share outstanding throughout the period)

    Period from
March 17, 2009
(commencement of
operations) through
August 31, 2009
(Unaudited)		  
Net asset value, beginning of period   $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)†      0.04    
Net realized and unrealized gain (loss)     0.01    
Total from investment operations     0.05    
Less distributions to shareholders:  
From net investment income     (0.04 )  
Total distributions     (0.04 )  
Net asset value, end of period   $ 25.01    
Total Return(a)      0.19 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 234,726    
Net expenses to average daily net assets     0.00 %(b)*   
Net investment income to average daily net assets     0.32 %*   
Portfolio turnover rate     0 %**   
Fees and expenses reimbursed and/or waived by the Manager to average daily net assets     0.13 %*   

 

(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)  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.


6



GMO U.S. Treasury Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO U.S. Treasury Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 liquidity and safety of principal with current income as a secondary objective. The Fund seeks to achieve its investment objective by investing primarily in U.S. Treasury securities. Under normal circumstances, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in Direct U.S. Treasury Obligations and repurchase agreements collateralized by these Obligations. "Direct U.S. Treasury Obligations" include U.S. Treasury bills, bonds, and notes and other securities issued by the U.S. Treasury, such as Separately Traded Registered Interest and Principal Securities (STRIPS) and other zero-coupon securities, that are backed by the full faith and credit of the U.S. government as well as repurchase agreements relating to the foregoing. As a principal investment strategy the Fund may enter into repurchase agreements. In addition to Direct U.S. Treasury Obligations, the F und may also invest in other fixed-income securities that are backed by the full faith and credit of the U.S. government, such as guaranteed securities issued by the Government National Mortgage Association (GNMA) and the Federal Deposit Insurance Corporation (FDIC). The Fund may also invest in unaffiliated money market funds. The Fund normally invests in Direct U.S. Treasury Obligations and other fixed-income securities backed by the full faith and credit of the U.S. government with a stated or remaining maturity of one year or less. This may not be true of Direct U.S. Treasury Obligations purchased pursuant to repurchase agreements, and, therefore, if the counterparty to the repurchase agreement defaults, the Fund may own a security with a stated or remaining maturity of greater than one year. Although the Fund primarily invests in short-term obligations, it is not a money market fund and is not subject to the duration, quality, diversification, and other requirements applicable to money market funds. Othe r series of the Trust may invest in the Fund to achieve exposure to U.S. Treasury securities, to invest cash and/or to seek to generate a return similar to yields on U.S. Treasury securities. The Fund's benchmark is the Citigroup 3 Month Treasury Bill Index.

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


7


GMO U.S. Treasury Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

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


8


GMO U.S. Treasury Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Mutual Funds   $ —     $ 16,655     $ —     $ 16,655    
Short-Term Investments     89,215,358       145,462,920       —       234,678,278    
Total Investments   $ 89,215,358     $ 145,479,575     $ —     $ 234,694,933    

 

The Fund held no investments or other financial instruments at August 31, 2009, 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 carryforwards 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 distributions from net investment income daily, and will pay distributions on the first business day following the end of each month in which distributions were declared. The Fund's policy is to declare and pay distributions 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.


9


GMO U.S. Treasury Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 234,665,278     $ 29,655     $ —     $ 29,655    

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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. The Fund receives the benefit of the


10


GMO U.S. Treasury Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's U.S. Treasury and other fixed income securities will decline during periods of rising interest rates, and yields on the Fund's securities may equal or approach zero during some market conditions.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to a repurchase agreement, or a borrower of the Fund's securities will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise honor its obligations.

• Focused Investment Risk — Focusing investments in countries, regions, or sectors with high positive correlations to one another creates additional risk.

Other principal risks of an investment in the Fund include Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disr upt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected).

Disclosures about Derivative Instruments and Hedging Activities — The Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.


11


GMO U.S. Treasury Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee is paid monthly at the annual rate of 0.08% of average daily net assets. The Manager has voluntarily agreed to waive the Fund's management fee. The Manager may change or terminate this waiver at any time. This waiver is in addition to the Manager's contractual agreement to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 (see paragraph below). During any period for which the voluntary management fee waiver is in effect, the Fund will incur management fees at an annual rate lower than 0.08% of the Fund's average daily net assets.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total operating expenses (without giving effect to any voluntary management fee waiver) (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.08% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (in cluding an exchange-traded fund) 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 transactions 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, 2009 was $2,004 and $1,432, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009.

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss


12


GMO U.S. Treasury Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 57.87% 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. Two of the shareholders are other funds of the Trust.

As of August 31, 2009, 0.30% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 99.65% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:

    Period from March 17, 2009
(commencement of operations)
August 31, 2009
(Unaudited)		  
    Shares   Amount  
Shares sold     41,921,156     $ 1,048,224,218    
Shares issued to shareholders
in reinvestment of distributions		     16,259       406,708    
Shares repurchased     (32,553,348 )     (814,041,945 )  
Net increase (decrease)     9,384,067     $ 234,588,981    

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


13



GMO U.S. Treasury Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the initial investment management agreement of the Fund, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them, to be relevant. At a meeting on December 4, 2008, the Trustees discussed materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of their considering the Manager's proposal to establish the Fund as a new series of the Trust and the proposed new investment management agreement between the Trust, on behalf of the Fund, and the Manager. During the meeting, the Trustees met with members of the Manager's Fixed Income Division, the investment division that would be responsible for overall investment management of the Fund. As discussed below, at meetings throughout the year, the Trustees also considered other information releva nt to approval of the Fund's investment management agreement.

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

Since the Fund had not yet commenced operations, the Trustees were unable to consider its performance. However, the Trustees considered that the Fund's purpose is to serve as an investment vehicle for the Trust's other funds and GMO separate account clients rather than as a stand-alone fund, the qualifications and experience of the personnel responsible for managing those funds, the support those personnel received from the Manager, the investment techniques used to manage those funds, and the overall competence of the Manager.

The Trustees gave substantial consideration to the fees to be paid under the Fund's investment management agreement. In evaluating those fees, the Trustees took into account the sophistication of the investment techniques to be used to manage the Fund. Since the Fund had not yet commenced operations, the Trustees were unable to review the Manager's profitability with respect to the Fund. The Trustees did, however, consider how the proposed fees compared to fees paid by other funds of GMO Trust and so-called "fallout benefits" to the Manager, such as the possible reputational value to be derived from serving as investment manager to the Fund. As the Fund had not yet commenced operations, the Trustees did not consider possible economies of scale to the Manager associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement , that the advisory fee to be charged to the Fund was reasonable.


14


GMO U.S. Treasury Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

The Trustees also considered other information regarding the quality of the services to be provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of other funds of the Trust. The Trustees also considered the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also took into account information concerning the Manager's practices and results with respect to the execution of portfolio transactions that they received over the course of the year. Finally, the Trustees also considered the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

The Trustees considered the scope of the services to be 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 would be consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services to be provided by persons other than the Manager, considering, among other things, the Fund's estimated total expenses, the Manager's proposed contractual expense reimbursement arrangement with respect t o the Fund, and the reputation of the Fund's other service providers.

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

Following their review, on December 4, 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 Fund's initial investment management agreement for an initial period ending on the second anniversary of the agreement's execution.


15


GMO U.S. Treasury Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the period ended August 31, 2009.

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

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, as outlined in the notes to the table below.

Actual Expenses

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

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of 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     $ 1,001.90     $ 0.00 (a)   
2) Hypothetical     0.00 %   $ 1,000.00     $ 1,025.21     $ 0.00 (b)   

 

(a)  For the period March 17, 2009 (commencement of operations) through August 31, 2009. Expense is calculated using the Fund's annualized net expense ratio for the period ended August 31, 2009, multiplied by the average account value over the period, multiplied by 168 days in the period, divided by 365 days in the year.

(b)  For the period March 1, 2009 through August 31, 2009. Expense is calculated using the Fund's annualized net expense ratio for the period ended August 31, 2009, 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%.


16



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     96.4 %  
Short-Term Investments     3.9    
Futures     0.3    
Preferred Stocks     0.0    
Rights and Warrants     0.0    
Forward Currency Contracts     (1.1 )  
Other     0.5    
      100.0 %  
Country / Region Summary**   % of Investments  
Euro Region***     27.9 %  
Japan     24.9    
United Kingdom     23.3    
Switzerland     9.1    
Sweden     4.6    
Australia     4.4    
Canada     1.9    
Singapore     1.4    
Denmark     1.1    
Hong Kong     0.9    
Norway     0.3    
New Zealand     0.2    
      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 Fund attempts to hedge at least 70% of the foreign currency exposure in the underlying fund's investments relative to the U.S. Dollar. Therefore, the Fund's currency exposures will be different than the country exposures noted above.

***  The "Euro Region" is comprised of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia 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, 2009 (Unaudited)

Shares/
Par Value ($) 		  Description   Value ($)  
        MUTUAL FUNDS — 99.5%        
        United States — 99.5%        
        Affiliated Issuers        
  838,301     GMO International Growth Equity Fund, Class IV     16,053,470    
  786,780     GMO International Intrinsic Value Fund, Class IV     16,184,061    
    Total United States     32,237,531    
    TOTAL MUTUAL FUNDS (COST $38,440,562)     32,237,531    
        SHORT-TERM INVESTMENTS — 1.9%        
  30,320     Bank of Ireland Time Deposit, 0.03%, due 09/01/09     30,320    
  14     Brown Brothers Harriman Time Deposit, 0.02%, due 09/01/09     14    
  600,000     Societe Generale Time Deposit, 0.13%, due 09/01/09     600,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $630,334)     630,334    
        TOTAL INVESTMENTS — 101.4%
(Cost $39,070,896)		     32,867,865    
        Other Assets and Liabilities (net) — (1.4%)     (460,583 )  
    TOTAL NET ASSETS — 100.0%   $ 32,407,282    

 

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, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys †  
10/23/09   CAD     342,000     $ 312,427     $ 3,462    
10/23/09   CHF     148,000       139,833       2,819    
10/23/09   JPY     13,368,000       143,716       1,621    
10/23/09   NZD     65,000       44,461       1,001    
    $ 640,437     $ 8,903    
Sales #  
10/23/09   AUD     1,439,072     $ 1,211,333     $ (31,380 )  
10/23/09   AUD     1,439,072       1,211,333       (32,733 )  
10/23/09   AUD     154,000       129,629       (4,216 )  
10/23/09   CHF     803,409       759,076       (14,561 )  
10/23/09   CHF     779,779       736,750       (11,185 )  
10/23/09   CHF     779,779       736,750       (10,980 )  
10/23/09   DKK     5,020,078       965,861       (16,316 )  
10/23/09   DKK     4,385,078       843,688       (13,291 )  
10/23/09   EUR     1,616,444       2,317,386       (42,026 )  
10/23/09   EUR     870,444       1,247,897       (18,462 )  
10/23/09   EUR     870,444       1,247,897       (22,276 )  
10/23/09   EUR     870,444       1,247,897       (19,824 )  
10/23/09   EUR     870,444       1,247,897       (20,683 )  
10/23/09   EUR     870,444       1,247,897       (20,736 )  
10/23/09   EUR     870,444       1,247,897       (18,020 )  
10/23/09   GBP     384,951       626,631       5,961    
10/23/09   GBP     384,951       626,631       10,771    
10/23/09   GBP     384,951       626,630       6,537    
10/23/09   GBP     384,951       626,630       9,519    
10/23/09   GBP     384,951       626,630       9,307    
10/23/09   GBP     857,951       1,396,589       6,549    
10/23/09   GBP     384,951       626,630       9,986    
10/23/09   HKD     4,739,380       611,747       (15 )  
10/23/09   JPY     85,349,849       917,575       (15,921 )  

 

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, 2009 (Unaudited)

Forward Currency Contracts — continued

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
10/23/09   JPY     85,349,849     $ 917,575     $ (16,167 )  
10/23/09   JPY     85,349,849       917,575       (15,448 )  
10/23/09   JPY     85,349,849       917,575       (16,643 )  
10/23/09   JPY     159,783,849       1,717,797       (29,144 )  
10/23/09   JPY     85,349,849       917,575       (15,986 )  
10/23/09   JPY     85,349,849       917,575       (16,453 )  
10/23/09   NOK     4,075,524       676,251       (16,023 )  
10/23/09   NZD     207,000       141,590       (4,463 )  
10/23/09   SEK     3,038,998       427,010       (8,822 )  
10/23/09   SEK     3,038,998       427,010       (7,624 )  
10/23/09   SGD     505,286       350,491       (1,994 )  
10/23/09   SGD     505,286       350,491       (2,210 )  
    $ 31,763,396     $ (404,972 )  

 

†  Fund buys foreign currency; sells USD.

#  Fund sells foreign currency; buys USD.

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

USD - United States 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, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $630,334) (Note 2)   $ 630,334    
Investments in affiliated issuers, at value (cost $38,440,562) (Notes 2 and 8)     32,237,531    
Unrealized appreciation on open forward currency contracts (Note 2)     67,533    
Receivable for expenses reimbursed by Manager (Note 3)     29,209    
Total assets     32,964,607    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     14,649    
Shareholder service fee     4,072    
Trustees and Chief Compliance Officer of GMO Trust fees     68    
Unrealized depreciation on open forward currency contracts (Note 2)     463,602    
Accrued expenses     74,934    
Total liabilities     557,325    
Net assets   $ 32,407,282    
Net assets consist of:  
Paid-in capital   $ 46,342,798    
Accumulated undistributed net investment income     327,245    
Accumulated net realized loss     (7,663,661 )  
Net unrealized depreciation     (6,599,100 )  
    $ 32,407,282    
Net assets attributable to:  
Class III shares   $ 32,407,282    
Shares outstanding:  
Class III     12,438,236    
Net asset value per share:  
Class III   $ 2.61    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 564,762    
Interest     1,036    
Total investment income     565,798    
Expenses:  
Management fee (Note 3)     78,333    
Shareholder service fee – Class III (Note 3)     21,762    
Custodian and fund accounting agent fees     33,236    
Audit and tax fees     30,912    
Transfer agent fees     13,524    
Registration fees     2,116    
Legal fees     460    
Trustees fees and related expenses (Note 3)     233    
Miscellaneous     273    
Total expenses     180,849    
Fees and expenses reimbursed by Manager (Note 3)     (80,340 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (71,353 )  
Shareholder service fee waived (Note 3)     (12,844 )  
Net expenses     16,312    
Net investment income (loss)     549,486    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (3,747,168 )  
Foreign currency, forward contracts and foreign currency related transactions     (2,395,451 )  
Net realized gain (loss)     (6,142,619 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     13,189,551    
Foreign currency, forward contracts and foreign currency related transactions     (604,252 )  
Net unrealized gain (loss)     12,585,299    
Net realized and unrealized gain (loss)     6,442,680    
Net increase (decrease) in net assets resulting from operations   $ 6,992,166    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 549,486     $ 1,003,127    
Net realized gain (loss)     (6,142,619 )     1,816,102    
Change in net unrealized appreciation (depreciation)     12,585,299       (13,166,709 )  
Net increase (decrease) in net assets from operations     6,992,166       (10,347,480 )  
Distributions to shareholders from:  
Net investment income  
Class III     (2,756,296 )     (1,457,990 )  
Net realized gains  
Class III     —       (8,027,267 )  
      (2,756,296 )     (9,485,257 )  
Net share transactions (Note 7):  
Class III     2,754,271       14,976,832    
Total increase (decrease) in net assets     6,990,141       (4,855,905 )  
Net assets:  
Beginning of period     25,417,141       30,273,046    
End of period (including accumulated undistributed net
investment income of $327,245 and $2,534,055,
respectively)		   $ 32,407,282     $ 25,417,141    

 

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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 2.26     $ 5.32     $ 7.45     $ 9.07     $ 8.38     $ 7.33    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.05       0.15       0.03       0.10       0.07       0.21    
Net realized and unrealized
gain (loss)		     0.55       (1.60 )     (0.29 )     1.17       2.17       0.84    
Total from investment operations     0.60       (1.45 )     (0.26 )     1.27       2.24       1.05    
Less distributions to shareholders:  
From net investment income     (0.25 )     (0.20 )     —       (0.12 )     (0.71 )(b)      —    
From net realized gains     —       (1.41 )     (1.87 )     (2.77 )     (0.84 )     —    
Total distributions     (0.25 )     (1.61 )     (1.87 )     (2.89 )     (1.55 )     —    
Net asset value, end of period   $ 2.61     $ 2.26     $ 5.32     $ 7.45     $ 9.07     $ 8.38    
Total Return(c)      27.68 %**      (35.57 )%     (6.75 )%     15.60 %     28.42 %     14.32 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 32,407     $ 25,417     $ 30,273     $ 227,096     $ 728,814     $ 580,905    
Net expenses to average daily net
assets(d) 		     0.11 %*      0.11 %(e)      0.08 %(e)      0.07 %     0.05 %     0.04 %  
Net investment income to average
daily net assets(a) 		     3.79 %*      3.96 %     0.42 %     1.23 %     0.82 %     2.64 %  
Portfolio turnover rate     6 %**      17 %     11 %     18 %     36 %     3 %  
Fees and expenses reimbursed
and/or waived by the Manager
to average daily net assets:		     1.13 %*      1.24 %     0.71 %     0.68 %     0.67 %     0.71 %  

 

(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, 2009 (Unaudited)

1.  Organization

GMO Currency Hedged International Equity Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 MSCI EAFE Index (Europe, Australasia, and Far East) (Hedged). The Fund is a fund of funds and invests primarily in other series of the Trust. The Fund may invest to varying extents in GMO International Core Equity Fund, GMO International Intrinsic Value Fund, GMO International Growth Equity Fund, GMO International Small Companies Fund, and GMO Flexible Equities Fund (the GMO Funds in which the Fund invests are collectively referred to as "underlying funds"). Under normal circumstances, the Fund invests at least 80% of its assets in equity investments (which include common stocks and other stock-related securities, such as preferred stocks, convertible securities, and depository receipts). GMO attempts to hedge at least 70% of the foreign currency exposure in the underlying funds' investments relative to the U.S. dollar through the use of currency forwards and ot her derivatives. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and other cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective.

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.


9


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Portfolio valuation

Shares of the underlying funds and other mutual funds are generally 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty. 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 t he NYSE. As a result, the Fund generally values foreign equity securities as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 92.48% 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. Those underlying funds classify such securities under SFAS 157 (as defined below) as Level 2.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

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


10


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Mutual Funds  
United States   $ 32,237,531     $ —     $ —     $ 32,237,531    
Short-Term Investments     630,334       —       —       630,334    
Total Investments     32,867,865       —       —       32,867,865    
Derivatives  
Forward Currency Contracts     —       67,533       —       67,533    
Total   $ 32,867,865     $ 67,533     $ —     $ 32,935,398    

 

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical
Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Forward Currency Contracts   $ —     $ (463,602 )   $ —     $ (463,602 )  
Total   $ —     $ (463,602 )   $ —     $ (463,602 )  

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financials statements.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, whose fair value was determined using Level 3 inputs.


11


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. 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. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some circumstances, futures exchanges may establish daily limits on the


12


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the-counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.


13


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying


14


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to make a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the stri ke price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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


15


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

giving effect to any available capital loss carryforwards 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.

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

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 42,618,940     $ —     $ (9,751,075 )   $ (9,751,075 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of the statute of limitations by U.S. federal and state tax authorities for tax returns filed.


16


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the trade date in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund, including those risks to which the Fund is exposed as a result of its investments in underlying funds. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities held by underlying funds may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund and its underlying funds generally seek to be fully invested and normally do not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's and the underlying funds' investments.


17


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Derivatives Risk — The use of derivatives by the Fund or underlying funds involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset. The risk to the Fund of using derivatives is particularly pronounced because the Fund typically makes frequent use of currency forwards and other derivatives for hedging purposes.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund or an underlying fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent an underlying fund from selling securities or closing derivative positions at desirable prices.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in the underlying funds, including the risk that the underlying funds in which it invests will not perform as expected.

Other principal risks of an investment in the Fund include Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments by an underlying fund in companies with smaller market capitalizations), Currency Risk (risk that fluctuations in exchange rates may adversely affect the value of an underlying fund's investments denominated in foreign currencies, or that the U.S. dollar will decline in value relative to the foreign currency being hedged by the Fund or an underlying fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty of the Fund or an underlying fund or a borrower of an underlying fund's securities), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by an underlying fund may affect the Fund's performance more than if the Fund were diversified.


18


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may take active overweighted and underweighted positions in particular currencies relative to its benchmark. The Manager looks at the holdings of the GMO Trust Funds in which the Fund invests (the "underlying Funds") to measure base currency exposure and then attempts to hedge at least 70% of the foreign currency exposure in the underlying Funds' investments relative to the U.S. dollar through the use of currency forwards and other derivatives.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with


19


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

a limited number of counterparties and events that affect the creditworthiness of any one of those counterparties may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


20


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^  
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value
(purchased options, rights
and warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts*		     —       —       —       —       —       —    
Unrealized appreciation on
forward currency contracts		     —       67,533       —       —       —       67,533    
Unrealized appreciation on
swap agreements		     —       —       —       —       —       —    
Total   $ —     $ 67,533     $ —     $ —     $ —     $ 67,533    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts*		     —       —       —       —       —       —    
Unrealized depreciation on
forward currency contracts		     —       (463,602 )     —       —       —       (463,602 )  
Unrealized depreciation on
swap agreements		     —       —       —       —       —       —    
Total   $ —     $ (463,602 )   $ —     $ —     $ —     $ (463,602 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


21


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^  
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options,
rights and warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       (2,460,995 )     —       —       —       (2,460,995 )  
Total   $ —     $ (2,460,995 )   $ —     $ —     $ —     $ (2,460,995 )  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options,
rights and warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       —       —       —    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       (604,252 )     —       —       —       (604,252 )  
Total   $ —     $ (604,252 )   $ —     $ —     $ —     $ (604,252 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards  
Average notional amount outstanding   $ 30,036,162    
Highest notional amount outstanding     32,590,924    
Lowest notional amount outstanding     27,103,029    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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


22


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.54% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses incurred indirectly 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 co mmissions, 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 (including an exchange-traded fund) 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, nonrecurring 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, 2010 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 direct or indirect investment in 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, 2009, 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		  
  0.497 %     0.089 %     0.586 %  

 

      

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, 2009 was $233 and $184, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.


23


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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, 2009 aggregated $1,662,762 and $3,841,000, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 99.84% of the outstanding shares of the Fund were held by one shareholder.

As of August 31, 2009, no shares of the Fund were held by senior management of the Manager and GMO Trust officers and 99.84% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     —     $ —       3,152,794     $ 7,126,233    
Shares issued to shareholders
in reinvestment of distributions		     1,188,047       2,756,270       2,760,917       9,207,751    
Shares repurchased     (897 )     (1,999 )     (353,573 )     (1,357,152 )  
Net increase (decrease)     1,187,150     $ 2,754,271       5,560,138     $ 14,976,832    

 


24


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 12,499,409     $ 1,163,645     $ 1,584,500     $ 373,645     $ —     $ 16,053,470    
GMO International Intrinsic
Value Fund, Class IV		     12,473,977       499,117       2,256,500       191,117       —       16,184,061    
Totals   $ 24,973,386     $ 1,662,762     $ 3,841,000     $ 564,762     $ —     $ 32,237,531    

 

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


25



GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The


26


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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. The Trustees noted 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 of the underlying funds 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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 Currency Hedged International Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


28


GMO Currency Hedged International Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.70 %   $ 1,000.00     $ 1,276.80     $ 4.02    
2) Hypothetical     0.70 %   $ 1,000.00     $ 1,021.68     $ 3.57    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


29



GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


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

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     94.7 %  
Short-Term Investments     2.6    
Cash and Cash Equivalents     1.2    
Preferred Stocks     1.0    
Debt Obligations     0.1    
Private Equity Securities     0.0    
Investment Funds     0.0    
Forward Currency Contracts     0.0    
Convertible Securities     0.0    
Rights and Warrants     0.0    
Reverse Repurchase Agreements     (0.0 )  
Swaps     (0.5 )  
Futures     (0.7 )  
Other     1.6    
      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

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Country Summary**   % of Investments  
United States     39.6 %  
Euro Region***     13.8    
Japan     13.6    
United Kingdom     10.7    
Switzerland     4.7    
South Korea     2.4    
Australia     1.7    
Sweden     1.7    
Russia     1.6    
Brazil     1.5    
China     1.3    
Taiwan     1.3    
Turkey     1.1    
India     0.7    
Singapore     0.7    
Thailand     0.6    
Canada     0.5    
Hong Kong     0.5    
Denmark     0.3    
Indonesia     0.3    
Poland     0.3    
Egypt     0.2    
Malaysia     0.2    
South Africa     0.2    
Israel     0.1    
Mexico     0.1    
New Zealand     0.1    
Norway     0.1    
Philippines     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, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.


2



GMO Global Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        AFFILIATED ISSUERS — 100.0%        
        Mutual Funds — 100.0%        
  1,974,391     GMO Alpha Only Fund, Class IV     9,832,467    
  6,603,954     GMO Emerging Markets Fund, Class VI     70,332,106    
  687,336     GMO Flexible Equities Fund, Class VI     14,042,272    
  4,140,036     GMO International Core Equity Fund, Class VI     110,290,556    
  3,172,397     GMO International Growth Equity Fund, Class IV     60,751,412    
  3,069,359     GMO International Intrinsic Value Fund, Class IV     63,136,705    
  1,609,023     GMO International Small Companies Fund, Class III     11,070,081    
  12,465,724     GMO Quality Fund, Class VI     219,272,076    
  16,896     GMO Short-Duration Investment Fund, Class III     131,281    
  3,353,566     GMO U.S. Core Equity Fund, Class VI     32,797,879    
  1,039     GMO U.S. Growth Fund, Class III     13,819    
      591,670,654    
        Private Investment Fund — 0.0%        
  175     GMO SPV I, LLC (a)      39    
    TOTAL AFFILIATED ISSUERS (COST $533,990,273)     591,670,693    
        SHORT-TERM INVESTMENTS — 0.0%        
  29,068     State Street Eurodollar Time Deposit , 0.01%, due 09/01/09     29,068    
    TOTAL SHORT-TERM INVESTMENTS (COST $29,068)     29,068    
        TOTAL INVESTMENTS — 100.0%
(Cost $534,019,341)		     591,699,761    
        Other Assets and Liabilities (net) — (0.0%)     (31,440 )  
    TOTAL NET ASSETS — 100.0%   $ 591,668,321    

 

See accompanying notes to the financial statements.


3


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Notes to Schedule of Investments:

(a)  Underlying investment represents interests in defaulted securities.

See accompanying notes to the financial statements.


4



GMO Global Equity Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $29,068) (Note 2)   $ 29,068    
Investments in affiliated issuers, at value (cost $533,990,273) (Notes 2 and 8)     591,670,693    
Receivable for expenses reimbursed by Manager (Note 3)     8,866    
Total assets     591,708,627    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     923    
Accrued expenses     39,383    
Total liabilities     40,306    
Net assets   $ 591,668,321    
Net assets consist of:  
Paid-in capital   $ 680,842,115    
Accumulated undistributed net investment income     5,958,842    
Accumulated net realized loss     (152,813,056 )  
Net unrealized appreciation     57,680,420    
    $ 591,668,321    
Net assets attributable to:  
Class III shares   $ 591,668,321    
Shares outstanding:  
Class III     82,133,888    
Net asset value per share:  
Class III   $ 7.20    

 

See accompanying notes to the financial statements.


5


GMO Global Equity Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 5,964,171    
Total investment income     5,964,171    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     19,688    
Audit and tax fees     16,376    
Legal fees     8,740    
Trustees fees and related expenses (Note 3)     4,532    
Registration fees     4,140    
Miscellaneous     4,136    
Total expenses     57,612    
Fees and expenses reimbursed by Manager (Note 3)     (50,968 )  
Expense reductions (Note 2)     (1,315 )  
Net expenses     5,329    
Net investment income (loss)     5,958,842    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (132,541,185 )  
Net realized gain (loss)     (132,541,185 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     257,691,916    
Net realized and unrealized gain (loss)     125,150,731    
Net increase (decrease) in net assets resulting from operations   $ 131,109,573    

 

See accompanying notes to the financial statements.


6


GMO Global Equity Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 5,958,842     $ 14,470,249    
Net realized gain (loss)     (132,541,185 )     (7,893,357 )  
Change in net unrealized appreciation (depreciation)     257,691,916       (182,023,986 )  
Net increase (decrease) in net assets from operations     131,109,573       (175,447,094 )  
Distributions to shareholders from:  
Net investment income  
Class III     —       (15,018,150 )  
Net realized gains  
Class III     (3,648,757 )     (35,633,100 )  
      (3,648,757 )     (50,651,250 )  
Net share transactions (Note 7):  
Class III     32,543,726       300,532,912    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     385,592       319,677    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     32,929,318       300,852,589    
Total increase (decrease) in net assets     160,390,134       74,754,245    
Net assets:  
Beginning of period     431,278,187       356,523,942    
End of period (including accumulated undistributed net investment
income of $5,958,842 and $0, respectively)		   $ 591,668,321     $ 431,278,187    

 

See accompanying notes to the financial statements.


7



GMO Global Equity Allocation Fund

(A Series of GMO Trust)

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

    Six Months
Ended
August 31, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 5.29     $ 10.25     $ 11.96     $ 11.89     $ 11.63     $ 10.86    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.08       0.34       0.20       0.23       0.23       0.23    
Net realized and unrealized
gain (loss)		     1.88       (4.01 )     0.09 (b)      1.08       1.32       1.23    
Total from investment operations     1.96       (3.67 )     0.29       1.31       1.55       1.46    
Less distributions to shareholders:  
From net investment income     —       (0.31 )     (0.49 )     (0.38 )     (0.34 )     (0.27 )  
From net realized gains     (0.05 )     (0.98 )     (1.51 )     (0.86 )     (0.95 )     (0.42 )  
Total distributions     (0.05 )     (1.29 )     (2.00 )     (1.24 )     (1.29 )     (0.69 )  
Net asset value, end of period   $ 7.20     $ 5.29     $ 10.25     $ 11.96     $ 11.89     $ 11.63    
Total Return(c)      37.17 %**      (39.44 )%     1.01 %     11.56 %     13.91 %     13.70 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 591,668     $ 431,278     $ 356,524     $ 354,236     $ 326,032     $ 335,819    
Net expenses to average daily net
assets(d)(e) 		     0.00 %(f)*      0.00 %(f)      0.00 %(f)      0.00 %     0.00 %     0.00 %  
Net investment income to average
daily net assets(a) 		     2.59 %*      4.27 %     1.63 %     1.90 %     1.99 %     2.11 %  
Portfolio turnover rate     34 %**      52 %     30 %     15 %     20 %     17 %  
Fees and expenses reimbursed
by the Manager to average daily
net assets:		     0.02 %*      0.03 %     0.02 %     0.02 %     0.02 %     0.04 %  
Purchase premiums and redemption
fees consisted of the following per
share amounts:† 		   $ 0.01     $ 0.01     $ 0.00 (g)    $ 0.00 (g)    $ 0.00 (g)    $ 0.00 (g)   

 

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

(b)  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)  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

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Global Equity Allocation Fund (the "Fund"), is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 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 and the GMO U.S. Equity Funds. The Fund may also invest in shares of other series of the Trust, including the GMO Fixed Income Funds, GMO Alpha Only Fund, GMO Flexible Equities Fund, and GMO Alternative Asset Opportunity Fund (the GMO Funds in which the Fund invests are collectively referred to as "underlying funds"). Although the Fund's primary exposure is to foreign and U.S. equity securities (including emerging country equities, both growth and value style equities, and equities of any market capitalization), the Fund also may have exposure to foreign and U.S. fixed income securities (including fixed income securities of any credit quality and having any maturity or duration), the investment returns of commodities and, f rom time to time, other alternative asset classes. Under normal circumstances, the Fund invests at least 80% of its assets in equity investments (which include common stocks and other stock-related securities, such as preferred stocks, convertible securities, and depository receipts). The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and other cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective.

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). As of August 31, 2009, shares of GMO Flexible Equities Fund were 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


9


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 generally 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 54.10% 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. Those underlying funds classify such securities under SFAS 157 (as defined below) as Level 2.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.


10


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Mutual Funds   $ 577,628,382     $ 14,042,272     $ —     $ 591,670,654    
Private Investment Fund     —       39       —       39    
Short-Term Investments     29,068       —       —       29,068    
Total   $ 577,657,450     $ 14,042,311     $ —     $ 591,699,761    

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net value of the Fund's indirect investments in securities using Level 3 inputs was 0.76% of total net assets.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Private Investment Fund   $ 49     $ —     $ —     $ —     $ (10 )   $ (39 )   $ —    
Total   $ 49     $ —     $ —     $ —     $ (10 )   $ (39 )   $ —    

 

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 carryforwards for U.S. federal income tax purposes. Therefore, no provision for U.S. federal income or excise tax is necessary.


11


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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.

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.

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

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 674,422,745     $ —     $ (82,722,984 )   $ (82,722,984 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. 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


12


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

asset received. In determining the net gain or loss on securities sold, the Fund uses the identified cost basis for the purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

For the six-month period ended August 31, 2009, the premium on cash purchases and the fee on cash redemptions were each 0.12% of the amount invested or redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager may consider known cash flows out of or into other series of the Trust when placing orders for the cash purchase or redemption of shares by the Fund shareholders or other prospective or existing shareholders of the Funds for whom GMO provides asset allocation advice. Consequently, the Fund and those other shareholders for whom GMO provides asset allocation advice will tend to benefit from waivers of the Funds' purchase premiums and redemption fees to a greater extent than other prospective and existing shareholders of the other series of the Trust. All or a portion of the Fund's purchase premiums and /or redemption fees may be waived at the Manager's discretion when they are de minimis and /or the Manager deems it equitable to do so, including without limitation when the weighted average of (i) the estimated transaction costs for directly held assets and (ii) the purchase premiums and /or redemption fees, if any, imposed by the underlying funds are less than the purchase premiums and /or redemption fees imposed by the Fund. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redem ption of a Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer


13


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund, including those risks to which the Fund is exposed as a result of its investments in the underlying funds. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities held by underlying funds may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund and its underlying funds generally seek to be fully invested and normally do not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's and the underlying funds' investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. An underlying fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent an underlying fund from selling securities or closing derivative positions at desirable prices.

• Derivatives Risk — The use of derivatives by underlying funds involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in the underlying funds, including the risk that the underlying funds in which it invests will not perform as


14


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

expected. Because the Fund bears the fees and expenses of the underlying funds in which it invests, investments in underlying funds with higher fees or expenses than the underlying funds in which the Fund is invested will increase the Fund's total expenses. The fees and expenses associated with an investment in the Fund are less predictable and may potentially be higher than fees and expenses associated with an investment in funds that charge a fixed management fee.

• Market Risk — Fixed Income Securities — Typically, the value of an underlying fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

Other principal risks of an investment in the Fund include Smaller Company Risk (greater market risk and liquidity risk resulting from investments by an underlying fund in companies with smaller market capitalizations), Commodities Risk (value of an underlying fund's shares may be affected by factors particular to the commodities markets and may fluctuate more than the share value of a fund with a broader range of investments), Currency Risk (risk that fluctuations in exchange rates m ay adversely affect the value of an underlying fund's investments denominated in foreign currencies or that the U.S. dollar will decline in value relative to a foreign currency being hedged by an underlying fund), Leveraging Risk (increased risks from use of reverse repurchase agreements and other derivatives and securities lending by an underlying fund), Credit and Counterparty Risk (risk of default of an issuer of a portfolio security or a derivatives counterparty of an underlying fund or a borrower of an underlying fund's securities), Real Estate Risk (risk to an underlying fund that concentrates its assets in real estate related investments that factors affecting the real estate industry may cause the value of the underlying fund's investments to fluctuate more than if it invested in securities of companies in a broader range of industries), Short Sales Risk (risk that an underlying fund's loss on the short sale of securities that it does not own is unlimited), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). Some of the underlying funds are non-diversified investment companies under the 1940 Act, and therefore a decline in the market value of a particular security held by those funds may affect their performance more than if they were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.


15


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.

3.  Fees and other transactions with affiliates

The Manager decides how to allocate the assets of the Fund among underlying funds. The Manager does not charge the Fund a management fee or shareholder service fee, but it receives management and shareholder service fees from the underlying funds in which the Fund invests. Because those fees vary from fund to fund, the levels of indirect net expenses set forth below are affected by the Manager's asset allocation decisions.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent that the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.00% of the fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) or would be an investme nt 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, nonrecurring 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, 2009, 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		  
  0.451 %     0.063 %     0.000 %     0.514 %  

 

        

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, 2009 was $3,612 and $2,116, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.


16


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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, 2009 aggregated $192,689,874 and $157,459,039, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 24.76% 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.

As of August 31, 2009, 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 each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     30,132,857     $ 189,788,668       43,957,397     $ 281,047,058    
Shares issued to shareholders
in reinvestment of distributions		     445,443       2,841,923       5,687,137       43,314,729    
Shares repurchased     (29,896,614 )     (160,086,865 )     (2,975,721 )     (23,828,875 )  
Purchase premiums     —       211,030       —       310,403    
Redemption fees     —       174,562       —       9,274    
Net increase (decrease)     681,686     $ 32,929,318       46,668,813     $ 300,852,589    

 


17


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Alpha Only Fund,
Class IV		   $ 15,228,232     $ 3,375,887     $ 7,555,616     $ 436,505     $ —     $ 9,832,467    
GMO Emerging Markets
Fund, Class VI		     39,020,469       23,144,209       15,555,697       161,497       —       70,332,106    
GMO Flexible Equities
Fund, Class VI		     8,309,024       5,285,269       2,309,812       —       —       14,042,272    
GMO International Core
Equity Fund, Class VI		     90,834,974       20,589,850       32,402,478       824,816       —       110,290,556    
GMO International Growth
Equity Fund, Class IV		     37,592,210       26,935,060       15,187,650       1,434,174       —       60,751,412    
GMO International Intrinsic
Value Fund, Class IV		     32,338,156       27,955,374       13,190,227       743,063       —       63,136,705    
GMO International Small
Companies Fund,
Class III		     —       10,103,430       —       36,271       —       11,070,081    
GMO Quality Fund,
Class VI		     178,925,759       68,386,890       62,147,035       2,020,247       —       219,272,076    
GMO Short-Duration
Investment Fund,
Class III		     119,922       916       —       916       —       131,281    
GMO SPV I, LLC     49       —       —       —       —       39    
GMO U.S. Core Equity
Fund, Class VI		     28,906,379       6,911,967       9,106,721       306,576       —       32,797,879    
GMO U.S. Growth Fund,
Class III		     13,953       1,022       3,803       106       —       13,819    
Totals   $ 431,289,127     $ 192,689,874     $ 157,459,039     $ 5,964,171     $ —     $ 591,670,693    

 

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. Effective September 14, 2009, the premium on cash purchases was 0.11% of the amount invested and the fee an cash redemptions was 0.11% of the amount redeemed.


18



GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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


19


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 (including the effect of recent market events and changes in assets under management and revenues on such profitability); 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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.


20


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


21


GMO Global Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

Actual Expenses

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

Hypothetical Example for Comparison Purposes

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

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

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.52 %   $ 1,000.00     $ 1,371.70     $ 3.11    
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, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


22



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     77.9 %  
Debt Obligations     16.9    
Short-Term Investments     4.4    
Cash and Cash Equivalents     3.3    
Options Purchased     0.3    
Loan Participations     0.0    
Forward Currency Contracts     0.0    
Preferred Stocks     0.0    
Loan Assignments     0.0    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Written Options     (0.1 )  
Reverse Repurchase Agreements     (1.2 )  
Swaps     (1.2 )  
Futures     (2.3 )  
Other     2.0    
      100.0 %  
Country / Region Summary**   % of Investments  
United States     54.4 %  
Japan     12.9    
Euro Region***     11.7    
United Kingdom     10.2    
Switzerland     4.7    
Sweden     1.9    
Australia     1.6    
Canada     0.8    
Singapore     0.6    
Denmark     0.4    
Hong Kong     0.3    
Emerging     0.2    
New Zealand     0.1    
Norway     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, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.


1



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        DEBT OBLIGATIONS — 2.5%  
        Asset-Backed Securities — 2.5%  
        Auto Financing — 0.3%  
    234,076     BMW Vehicle Lease Trust, Series 07-1, Class A3B, 1 mo. LIBOR + .24%,
0.51%, due 08/15/13		     233,945    
    600,000     Capital Auto Receivable Asset Trust, Series 08-1, Class A4B,
1 mo. LIBOR + 1.35%, 1.62%, due 07/15/14		     572,628    
    500,000     Daimler Chrysler Auto Trust, Series 08-B, Class A4B,
1 mo. LIBOR + 1.85%, 2.13%, due 11/10/14		     481,250    
    40,241     Daimler Chrysler Master Owner Trust, Series 06-A, Class A,
1 mo. LIBOR + .03%, 0.30%, due 11/15/11		     40,052    
    800,000     Ford Credit Auto Owner Trust, Series 07-B, Class A4B, 1 mo. LIBOR + .38%,
0.65%, due 07/15/12		     790,000    
    700,000     Ford Credit Floorplan Master Owner Trust, Series 06-4, Class A,
1 mo. LIBOR + .25%, 0.52%, due 06/15/13		     651,000    
    300,000     Nissan Auto Lease Trust, Series 08-A, Class A3B, 1 mo. LIBOR + 2.20%,
2.47%, due 07/15/11		     298,320    
    300,000     Nissan Auto Receivables Owner Trust, Series 07-A, Class A4, 1 mo. LIBOR,
0.27%, due 06/17/13		     298,409    
    200,000     Nissan Master Owner Trust Receivables, Series 07-A, Class A, 1 mo. LIBOR,
0.27%, due 05/15/12		     191,000    
    500,000     Swift Master Auto Receivables Trust, Series 07-1, Class A,
1 mo. LIBOR + .10%, 0.37%, due 06/15/12		     465,000    
    800,000     Truck Retail Installment Paper Corp., Series 05-1A, Class A, 144A,
1 mo. LIBOR + .27%, 0.54%, due 12/15/16		     690,081    
    Total Auto Financing     4,711,685    
        Bank Loan Collateralized Debt Obligations — 0.1%  
    776,361     Arran Corp. Loans No. 1 B.V., Series 06-1A, Class A3, 144A,
3 mo. LIBOR + .17%, 0.78%, due 06/20/25		     722,744    
    1,120,000     Omega Capital Europe Plc, Series GLOB-5A, Class A1, 144A,
3 mo. LIBOR + .25%, 0.83%, due 07/05/11		     996,800    
    Total Bank Loan Collateralized Debt Obligations     1,719,544    

 

See accompanying notes to the financial statements.


2


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Business Loans — 0.2%  
    1,068,467     Bayview Commercial Asset Trust, Series 05-4A, Class A2, 144A,
1 mo. LIBOR + .39%, 0.66%, due 01/25/36		     694,503    
    387,927     GE Business Loan Trust, Series 04-1, Class A, 144A, 1 mo. LIBOR + .29%,
0.56%, due 05/15/32		     267,670    
    700,000     GE Dealer Floorplan Master Trust, Series 06-4, Class A,
1 mo. LIBOR + .01%, 0.28%, due 10/20/11		     697,956    
    774,186     Lehman Brothers Small Balance Commercial, Series 05-2A, Class 1A, 144A,
1 mo. LIBOR + .25%, 0.52%, due 09/25/30		     464,512    
    400,000     Navistar Financial Dealer Note Master Trust, Series 05-1, Class A,
1 mo. LIBOR + .11%, 0.39%, due 02/25/13		     388,000    
    Total Business Loans     2,512,641    
        CMBS — 0.2%  
    600,000     Commercial Mortgage Pass-Through Certificates, Series 06-FL12,
Class AJ, 144A, 1 mo. LIBOR + .13%, 0.40%, due 12/15/20		     330,000    
    500,000     GE Capital Commercial Mortgage Corp., Series 05-C4, Class A2, 5.31%,
due 11/10/45		     501,700    
    600,000     GS Mortgage Securities Corp., Series 07-EOP, Class A2, 144A,
1 mo. LIBOR + .13%, 0.41%, due 03/06/20		     504,000    
    600,000     J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-LDP7,
Class A2, 6.05%, due 04/15/45		     604,862    
    400,000     Merrill Lynch Mortgage Trust, Series 06-C1, Class A2, 5.79%, due 05/12/39     402,520    
    398,434     Wachovia Bank Commercial Mortgage Trust, Series 06-WL7A, Class A1,
144A, 1 mo. LIBOR + .09%, 0.36%, due 09/15/21		     286,873    
    Total CMBS     2,629,955    
        Credit Cards — 0.5%  
    800,000     American Express Credit Account Master Trust, Series 05-5, Class A,
1 mo. LIBOR + .04%, 0.31%, due 02/15/13		     796,096    
    800,000     Cabela's Master Credit Card Trust, Series 08-4A, Class A2, 144A,
1 mo. LIBOR + 3.00%, 3.27%, due 09/15/14		     821,048    
    1,000,000     Capital One Multi-Asset Execution Trust, Series 04-A7, Class A7,
3 mo. LIBOR + .15%, 0.59%, due 06/16/14		     980,310    
    300,000     Capital One Multi-Asset Execution Trust, Series 07-A6, Class A6,
1 mo. LIBOR + .07%, 0.34%, due 05/15/13		     298,068    

 

See accompanying notes to the financial statements.


3


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
    700,000     Charming Shoppes Master Trust, Series 07-1A, Class A1, 144A,
1 mo. LIBOR + 1.25%, 1.52%, due 09/15/17		     646,723    
EUR     600,000     Citibank Credit Card Issuance Trust, Series 04-A2, Class A,
3 mo. EUR LIBOR + .10%, 0.95%, due 05/24/13		     815,380    
    300,000     Citibank OMNI Master Trust, Series 07-A9A, Class A9, 144A,
1 mo. LIBOR + 1.10%, 1.37%, due 12/23/13		     298,800    
    1,200,000     Discover Card Master Trust I, Series 06-2, Class A2, 1 mo. LIBOR + .03%,
0.30%, due 01/16/14		     1,173,333    
    600,000     GE Capital Credit Card Master Note Trust, Series 07-3, Class A1,
1 mo. LIBOR + .01%, 0.28%, due 06/15/13		     592,800    
    600,000     Household Credit Card Master Note Trust I, Series 07-2, Class A,
1 mo. LIBOR + .55%, 0.82%, due 07/15/13		     588,000    
    100,000     MBNA Credit Card Master Note Trust, Series 04-A8, Class A8,
1 mo. LIBOR + .15%, 0.42%, due 01/15/14		     98,150    
    500,000     National City Credit Card Master Trust, Series 08-3, Class A,
1 mo. LIBOR + 1.80%, 2.07%, due 05/15/13		     485,000    
    Total Credit Cards     7,593,708    
        Equipment Leases — 0.0%  
    191,063     CNH Equipment Trust, Series 07-B, Class A3B, 1 mo. LIBOR + .60%,
0.87%, due 10/17/11		     191,132    
    328,508     GE Equipment Midticket LLC, Series 07-1, Class A3B,
1 mo. LIBOR + .25%, 0.52%, due 06/14/11		     327,276    
    Total Equipment Leases     518,408    
        Insurance Premiums — 0.0%  
    400,000     AICCO Premium Finance Master Trust, Series 07-AA, Class A, 144A,
1 mo. LIBOR + .05%, 0.32%, due 12/15/11		     384,240    
        Insured Auto Financing — 0.2%  
    1,000,000     AmeriCredit Automobile Receivables Trust, Series 07-DF, Class A4B, FSA,
1 mo. LIBOR + .80%, 1.08%, due 06/06/14		     868,139    
    660,870     Capital One Auto Finance Trust, Series 06-A, Class A4, AMBAC,
1 mo. LIBOR + .01%, 0.28%, due 12/15/12		     637,145    
    800,000     Santander Drive Auto Receivables Trust, Series 07-3, Class A4B, FGIC,
1 mo. LIBOR + .65%, 0.92%, due 10/15/14		     744,560    

 

See accompanying notes to the financial statements.


4


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Auto Financing — continued  
    700,000     Triad Auto Receivables Owner Trust, Series 07-B, Class A4B, FSA,
1 mo. LIBOR + 1.20%, 1.48%, due 07/14/14		     637,000    
    Total Insured Auto Financing     2,886,844    
        Insured Other — 0.1%  
    1,100,000     DB Master Finance LLC, Series 06-1, Class A2, 144A, AMBAC, 5.78%,
due 06/20/31		     1,016,731    
    900,000     Dominos Pizza Master Issuer LLC, Series 07-1, Class A2, 144A, MBIA,
5.26%, due 04/25/37		     722,552    
    Total Insured Other     1,739,283    
        Insured Residential Asset-Backed Securities (United States) — 0.0%  
    248,730     Residential Asset Mortgage Products, Inc., Series 05-RS9, Class AI3, FGIC,
1 mo. LIBOR + .22%, 0.49%, due 11/25/35		     111,929    
        Insured Residential Mortgage-Backed Securities (United States) — 0.0%  
    694,155     Countrywide Home Equity Loan Trust, Series 07-E, Class A, MBIA,
1 mo. LIBOR + .15%, 0.42%, due 06/15/37		     138,414    
        Insured Time Share — 0.0%  
    332,484     Sierra Receivables Funding Co., Series 07-2A, Class A2, 144A, MBIA,
1 mo. LIBOR + 1.00%, 1.27%, due 09/20/19		     206,213    
        Investment Grade Corporate Collateralized Debt Obligations — 0.2%  
    2,000,000     Morgan Stanley ACES SPC, Series 05-15, Class A, 144A,
3 mo. LIBOR + .40%, 1.01%, due 12/20/10		     1,683,000    
    1,100,000     Morgan Stanley ACES SPC, Series 06-13A, Class A, 144A,
3 mo. LIBOR + .29%, 0.90%, due 06/20/13		     598,950    
    Total Investment Grade Corporate Collateralized Debt Obligations     2,281,950    
        Residential Asset-Backed Securities (United States) — 0.4%  
    483,007     ACE Securities Corp., Series 06-SL3, Class A1, 1 mo. LIBOR + .10%,
0.37%, due 06/25/36		     15,698    
    594,477     ACE Securities Corp., Series 07-WM1, Class A2A, 1 mo. LIBOR + .07%,
0.34%, due 11/25/36		     282,377    

 

See accompanying notes to the financial statements.


5


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    244,509     Argent Securities, Inc., Series 06-W2, Class A2B, 1 mo. LIBOR + .19%,
0.46%, due 03/25/36		     151,595    
    231,284     Argent Securities, Inc., Series 06-M2, Class A2B, 1 mo. LIBOR + .11%,
0.38%, due 09/25/36		     138,770    
    900,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3B,
1 mo. LIBOR + .11%, 0.38%, due 10/25/36		     840,240    
    280,271     Asset Backed Funding Certificates, Series 07-NC1, Class A1, 144A,
1 mo. LIBOR + .22%, 0.49%, due 05/25/37		     201,263    
    650,718     Bayview Financial Acquisition Trust, Series 04-B, Class A2, 144A,
1 mo. LIBOR + .65%, 1.56%, due 05/28/39		     390,431    
    1,200,000     Carrington Mortgage Loan Trust, Series 07-FRE1, Class A2,
1 mo. LIBOR + .20%, 0.47%, due 02/25/37		     735,377    
    30,560     Chase Funding Mortgage Loan Trust, Series 03-3, Class 2A2,
1 mo. LIBOR + .27%, 0.81%, due 04/25/33		     18,696    
    1,600,000     Countrywide Asset-Backed Certificates, Series 06-BC3, Class 2A2,
1 mo. LIBOR + .14%, 0.41%, due 02/25/37		     873,760    
    1,100,000     J.P. Morgan Mortgage Acquisition Corp., Series 06-WMC4, Class A3,
1 mo. LIBOR + .12%, 0.39%, due 12/25/36		     315,132    
    400,000     Master Asset-Backed Securities Trust, Series 06-FRE2, Class A4,
1 mo. LIBOR + .15%, 0.42%, due 03/25/36		     141,684    
    703,435     Morgan Stanley Home Equity Loans, Series 07-2, Class A1,
1 mo. LIBOR + .10%, 0.37%, due 04/25/37		     549,383    
    616,188     Residential Asset Securities Corp., Series 05-KS12, Class A2,
1 mo. LIBOR + .25%, 0.52%, due 01/25/36		     523,760    
    Total Residential Asset-Backed Securities (United States)     5,178,166    
        Residential Mortgage-Backed Securities (Australian) — 0.1%  
    211,575     Interstar Millennium Trust, Series 05-1G, Class A, 3 mo. LIBOR + .12%,
0.75%, due 12/08/36		     173,841    
    205,881     Superannuation Members Home Loans Global Fund, Series 7, Class A1,
3 mo. LIBOR + .14%, 0.77%, due 03/09/36		     194,423    
    563,912     Westpac Securitization Trust, Series 07-1G, Class A2A,
3 mo. LIBOR + .05%, 0.47%, due 05/21/38		     481,051    
    Total Residential Mortgage-Backed Securities (Australian)     849,315    

 

See accompanying notes to the financial statements.


6


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (European) — 0.1%  
    300,000     Aire Valley Mortgages, Series 07-1A, Class 1A2, 144A,
3 mo. LIBOR + .09%, 0.70%, due 03/20/30		     150,000    
    600,000     Brunel Residential Mortgages, Series 07-1A, Class A4C, 144A,
3 mo. LIBOR + .10%, 0.61%, due 01/13/39		     526,688    
    496,950     Paragon Mortgages Plc, Series 7A, Class A1A, 144A, 3 mo. LIBOR + .21%,
0.65%, due 05/15/34		     326,814    
    500,000     Pendeford Master Issuer Plc, Series 07-1A, Class 3A, 144A,
3 mo. LIBOR + .10%, 0.56%, due 02/12/16		     470,000    
    Total Residential Mortgage-Backed Securities (European)     1,473,502    
        Student Loans — 0.1%  
    500,000     College Loan Corp. Trust, Series 06-1, Class A2, 3 mo. LIBOR + .02%,
0.52%, due 04/25/22		     498,125    
    104,245     National Collegiate Student Loan Trust, Series 06-1, Class A2,
1 mo. LIBOR + .14%, 0.41%, due 08/25/23		     96,428    
    64,895     National Collegiate Student Loan Trust, Series 06-A, Class A1, 144A,
1 mo. LIBOR + .08%, 0.35%, due 08/26/19		     63,110    
    600,000     Nelnet Student Loan Trust, Series 05-2, Class A4, 3 mo. LIBOR + .08%,
0.69%, due 12/23/19		     585,504    
    Total Student Loans     1,243,167    
    Total Asset-Backed Securities     36,178,964    
        Corporate Debt — 0.0%  
    147,000     Health Care Property Investors, Inc., Series G, MTN, 5.63%, due 02/28/13     138,665    
        U.S. Government Agency — 0.0%  
    275,000     Agency for International Development Floater (Support of Morocco),
6 mo. U.S. Treasury Bill + .45%, 0.76%, due 11/15/14 (a) 		     262,941    
    166,667     Agency for International Development Floater (Support of Zimbabwe),
3 mo. U.S. Treasury Bill x 115%, 0.20%, due 01/01/12 (a) 		     161,819    
    Total U.S. Government Agency     424,760    
    TOTAL DEBT OBLIGATIONS (COST $34,960,860)     36,742,389    

 

See accompanying notes to the financial statements.


7


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 97.5%  
        Affiliated Issuers — 97.5%  
    13,746,187     GMO Alpha Only Fund, Class IV     68,456,011    
    1,583,403     GMO Asset Allocation Bond Fund, Class VI     40,645,965    
    6,340,885     GMO Domestic Bond Fund, Class VI     41,279,161    
    794,848     GMO Emerging Country Debt Fund, Class IV     6,120,331    
    2,316,271     GMO Flexible Equities Fund, Class VI     47,321,407    
    1,255,553     GMO Inflation Indexed Plus Bond Fund, Class VI     21,143,521    
    12,013,970     GMO International Growth Equity Fund, Class IV     230,067,534    
    11,601,423     GMO International Intrinsic Value Fund, Class IV     238,641,276    
    4,014,013     GMO International Small Companies Fund, Class III     27,616,407    
    29,866,881     GMO Quality Fund, Class VI     525,358,439    
    1,109,007     GMO Special Situations Fund, Class VI     29,921,007    
    5,263,196     GMO Strategic Fixed Income Fund, Class VI     84,579,555    
    6,644,954     GMO U.S. Core Equity Fund, Class VI     64,987,648    
    389,594     GMO World Opportunity Overlay Fund     7,542,545    
    TOTAL MUTUAL FUNDS (COST $1,575,925,194)     1,433,680,807    
        SHORT-TERM INVESTMENTS — 0.0%  
        Money Market Funds — 0.0%  
    33,483     State Street Institutional U.S. Government Money Market
Fund-Institutional Class		     33,483    
    TOTAL SHORT-TERM INVESTMENTS (COST $33,483)     33,483    
            TOTAL INVESTMENTS — 100.0%
(Cost $1,610,919,537)		     1,470,456,679    
          Other Assets and Liabilities (net) — 0.00%     1,128    
    TOTAL NET ASSETS — 100.0%   $ 1,470,457,807    

 

See accompanying notes to the financial statements.


8


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Notes to Schedule of Investments:

144A - Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional investors.

AMBAC - Insured as to the payment of principal and interest by AMBAC Assurance Corporation.

CMBS - Commercial Mortgage Backed Security

EUR LIBOR - London Interbank Offered Rate denominated in Euros.

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.

MTN - Medium Term Note

The rates shown on variable rate notes are the current interest rates at August 31, 2009, 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).

Currency Abbreviations:

EUR - Euro

See accompanying notes to the financial statements.


9



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $34,994,343) (Note 2)   $ 36,775,872    
Investments in affiliated issuers, at value (cost $1,575,925,194) (Notes 2 and 8)     1,433,680,807    
Receivable for investments sold     111,582    
Interest receivable     35,298    
Receivable for expenses reimbursed by Manager (Note 3)     12,214    
Miscellaneous receivable     168    
Total assets     1,470,615,941    
Liabilities:  
Payable for investments purchased     21    
Payable for Fund shares repurchased     111,750    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     2,451    
Accrued expenses     43,912    
Total liabilities     158,134    
Net assets   $ 1,470,457,807    
Net assets consist of:  
Paid-in capital   $ 1,671,044,743    
Accumulated undistributed net investment income     14,064,037    
Accumulated net realized loss     (74,188,115 )  
Net unrealized depreciation     (140,462,858 )  
    $ 1,470,457,807    
Net assets attributable to:  
Class III shares   $ 1,470,457,807    
Shares outstanding:  
Class III     80,786,202    
Net asset value per share:  
Class III   $ 18.20    

 

See accompanying notes to the financial statements.


10


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 23,455,759    
Interest     1,445,744    
Dividends     2,519    
Total investment income     24,904,022    
Expenses:  
Legal fees     23,828    
Custodian, fund accounting agent and transfer agent fees     23,552    
Audit and tax fees     15,640    
Trustees fees and related expenses (Note 3)     12,495    
Chief Compliance Officer (Note 3)     5,796    
Registration fees     2,944    
Miscellaneous     4,047    
Total expenses     88,302    
Fees and expenses reimbursed by Manager (Note 3)     (70,012 )  
Expense reductions (Note 2)     (1,335 )  
Net expenses     16,955    
Net investment income (loss)     24,887,067    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:        
Investments in unaffiliated issuers     72,441    
Investments in affiliated issuers     (69,626,229 )  
Realized gains distributions from affiliated issuers (Note 8)     2,921,246    
Foreign currency and foreign currency related transactions     (37 )  
Net realized gain (loss)     (66,632,579 )  
Change in net unrealized appreciation (depreciation) on:        
Investments in unaffiliated issuers     4,356,283    
Investments in affiliated issuers     345,996,174    
Net unrealized gain (loss)     350,352,457    
Net realized and unrealized gain (loss)     283,719,878    
Net increase (decrease) in net assets resulting from operations   $ 308,606,945    

 

See accompanying notes to the financial statements.


11


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 24,887,067     $ 86,991,469    
Net realized gain (loss)     (66,632,579 )     14,967,160    
Change in net unrealized appreciation (depreciation)     350,352,457       (433,884,141 )  
Net increase (decrease) in net assets from operations     308,606,945       (331,925,512 )  
Distributions to shareholders from:  
Net investment income  
Class III     (8,455,941 )     (97,614,780 )  
Net realized gains  
Class III     —       (55,458,846 )  
      (8,455,941 )     (153,073,626 )  
Net share transactions (Note 7):  
Class III     63,027,238       491,786,568    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     21,816       304,811    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     63,049,054       492,091,379    
Total increase (decrease) in net assets     363,200,058       7,092,241    
Net assets:  
Beginning of period     1,107,257,749       1,100,165,508    
End of period (including accumulated undistributed net
investment income of $14,064,037 and distributions in
excess of net investment income of $2,367,089, respectively)		   $ 1,470,457,807     $ 1,107,257,749    

 

See accompanying notes to the financial statements.


12



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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006(a)   
Net asset value, beginning of period   $ 14.37     $ 22.70     $ 23.71     $ 22.37     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.32       1.57       0.99       0.69       0.52    
Net realized and unrealized gain (loss)     3.62       (7.23 )     (0.15 )     2.17       2.34    
Total from investment operations     3.94       (5.66 )     0.84       2.86       2.86    
Less distributions to shareholders:  
From net investment income     (0.11 )     (1.61 )     (1.02 )     (0.90 )     (0.47 )  
From net realized gains     —       (1.06 )     (0.83 )     (0.62 )     (0.02 )  
Total distributions     (0.11 )     (2.67 )     (1.85 )     (1.52 )     (0.49 )  
Net asset value, end of period   $ 18.20     $ 14.37     $ 22.70     $ 23.71     $ 22.37    
Total Return(c)      27.47 %**      (26.75 )%     3.15 %     12.98 %     14.42 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,470,458     $ 1,107,258     $ 1,100,116     $ 529,374     $ 366,622    
Net expenses to average daily
net assets(d)(e) 		     0.00 %(f)*      0.00 %(f)      0.00 %(f)      0.00 %     0.00 %*   
Net investment income to average daily
net assets(b) 		     3.84 %*      8.05 %     4.05 %     2.98 %     3.22 %*   
Portfolio turnover rate     9 %**      34 %     47 %     23 %     10 %**   
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.01 %*      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     $ 0.01     $ 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 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 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.


13



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Strategic Opportunities Allocation Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 Barclays Capital U.S. Aggregate Index in the following proportions: 75% (MSCI World Index) and 25% (Barclays Capital U.S. Aggregate Index). The Fund is a fund of funds and invests primarily in shares or holds assets of other series of the Trust, which may include the GMO International Equity 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, GMO Short-Duration Collateral Fund, GMO Special Situations Fund, and GMO World Opportunity Overlay Fund (the GMO Funds in which the Fund invests are collectively referred to as "underlying funds"). In addition, the Fund may hold securities (particularly asset-backed securities) directly or through one or more subsidiaries or other entities. The Fund may have exposure to foreign and U.S. equity securities (including emerging country equities, both growth and value style equities, and equities of any market capitalization), U.S. and foreign fixed income securities (including fixed income securities of any credit quality and having any maturity or duration), the investment returns of commodities and, from time to time, other alternative asset classes. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury 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. As of August 31, 2009, shares of GMO Alternative Asset Opportunity Fund, GMO Flexible Equities Fund, GMO Short-Duration Collateral Fund, GMO Special Situations Fund, and GMO World Opportunity Overlay Fund were 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


14


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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.

As of August 31, 2009, a portion of the Fund's return of capital received from certain other GMO funds is expected to be classified as dividend income for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" as reported in the Statement of Operations has been increased by the portion estimated to be dividend income as of August 31, 2009. The estimated increase in dividend income is $755,096. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the additional income. The dividends from affiliated issuers are subject to change and will not be finalized until February 28, 2010, the Fund's fiscal year-end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Shares of the underlying funds and other mutual funds are generally valued at their net asset value.

Investments held directly by the Fund and by the underlying funds are valued as follows. Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally 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 fa ir value as determined in good faith by the Trustees or persons acting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 40.13% of th e net assets of the Fund, through investments in the underlying funds, were valued using fair value prices based on models used by a third


15


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

party vendor. Those underlying funds classify such securities under SFAS 157 (as defined below) as Level 2.

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 2.74% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund valued certain debt securities using indicative bids received from primary pricing sources. The Fund valued certain debt securities using a specified spread above the LIBOR Rate.


16


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Debt Obligations  
Asset-Backed Securities   $ —     $ 5,687,960     $ 30,491,004     $ 36,178,964    
Corporate Debt     —       138,665       —       138,665    
U.S. Government Agency     —       —       424,760       424,760    
TOTAL DEBT OBLIGATIONS     —       5,826,625       30,915,764       36,742,389    
Mutual Funds     1,348,895,848       84,784,959       —       1,433,680,807    
Short-Term Investments     —       33,483       —       33,483    
Total Investments     1,348,895,848       90,645,067       30,915,764       1,470,456,679    
Total   $ 1,348,895,848     $ 90,645,067     $ 30,915,764     $ 1,470,456,679    

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (both direct and indirect) in securities and other financial instruments using Level 3 inputs were 9.81% and (0.02)% of total net assets, respectively.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Debt Obligations  
Asset-Backed
Securities		   $ 34,786,584     $ (4,160,783 )   $ 614,580     $ 588,741     $ 4,349,842     $ (5,687,960 )   $ 30,491,004    
U.S. Government
Agency		     476,336       (58,333 )     2,398       2,334       2,025       —       424,760    
Total Debt Obligations     35,262,920       (4,219,116 )     616,978       591,075       4,351,867       (5,687,960 )     30,915,764    
Total   $ 35,262,920     $ (4,219,116 )   $ 616,978     $ 591,075     $ 4,351,867     $ (5,687,960 )   $ 30,915,764    

 


17


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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.

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 carryforwards 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $3,243,689.


18


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:



Aggregate Cost		  
Gross Unrealized
Appreciation		  
Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 1,646,479,132     $ 20,035,542     $ (196,057,995 )   $ (176,022,453 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. 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 uses the identified cost basis for the purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through June 29, 2009, the premium on cash purchases was 0.03% of the amount invested and the fee on cash redemptions was 2.00% of the amount redeemed. From June 30, 2009


19


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

through August 31, 2009, the purchase premium remained at 0.03% of the amount invested and the redemption fee was changed to 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager may consider known cash flows out of or into other series of the Trust when placing orders for the cash purchase or redemption of shares by the Fund shareholders or other prospective or existing shareholders of the Funds for whom GMO provides asset allocation advice. Consequently, the Fund and those other shareholders for whom GMO provides asset allocation advice will tend to benefit from waivers of the Funds' purchase premiums and redemption fees to a greater extent than other prospective and existing shareholders of the other series of the Trust. All or a portion of the Fund's purchase premiums and/or redemption fees may be waived at the Manager's discretion when they are de minimus and/or the Manager deems it equitable to do so, including without limitation when the weighted average of (i) the estimated transaction costs for directly held assets and (ii) the purchase premiums and/or redemption fees, if any, imposed by the underlying funds are less than the purchase premiums and/or redemption fee imposed by the Fund. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of a Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are r eceived.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund, including those risks to which the Fund is exposed as a result of its investments in underlying funds. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.


20


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Market Risk — Equity Securities — Equity securities held by underlying funds may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Declines in stock market prices generally are likely to result in declines in the value of the underlying funds' investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. An underlying fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Market Risk — Fixed Income Securities — Typically, the value of an underlying fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent an underlying fund from selling securities or closing derivative positions at desirable prices.

• Derivatives Risk — The use of derivatives by underlying funds involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in the underlying funds, including the risk that the underlying funds in which it invests will not perform as expected. Because the Fund bears the fees and expenses of the underlying funds in which it invests, investments in underlying funds with higher fees or expenses than the underlying funds in which the Fund is invested will increase the Fund's total expenses. The fees and expenses associated with an investment in the Fund are less predictable and may potentially be higher than fees and expenses associated with an investment in funds that charge a fixed management fee.

Other principal risks of an investment in the Fund include Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments by an underlying fund in companies with smaller market capitalizations), Commodities Risk (value of an underlying fund's shares may be affected by factors particular to the commodities markets and may fluctuate more than the share value of a fund with a broader range of investments), Currency Risk (risk that fluctuations in exchange rates may adversely affect


21


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the value of an underlying fund's investments denominated in foreign currencies or that the U.S. dollar will decline in value relation to a foreign currency being hedged by an underlying fund), Leveraging Risk (increased risks from use of reversed repurchase agreements and other derivatives and securities lending by an underlying fund), Credit and Counterparty Risk (risk of default of an issuer of a portfolio security or a derivatives counterparty of an underlying fund or a borrower of an underlying fund's securities), Real Estate Risk (risk to an underlying fund that concentrates its assets in real estate-related investments that factors affecting the real estate industry may cause the value of the underlying fund's investments to fluctuate more than if it invested in securities of companies in a broader range of industries), Short Sales Risk (risk that an underlying fund's loss on the short sale of securities that it does not own is unlimited), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). Some of the underlying funds are non-diversified investment companies under the 1940 Act, and therefore a decline in the market value of a particular security held by those funds may affect their performance more than if they were diversified.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of u nderlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events


22


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underlying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.

3.  Fees and other transactions with affiliates

The Manager decides how to allocate the assets of the Fund among underlying funds. The Manager does not charge the Fund a management fee or shareholder service fee, but it receives management and shareholder service fees from the underlying funds in which the Fund invests. Because those fees vary from fund to fund, the levels of indirect net expenses set forth below are affected by the Manager's asset allocation decisions.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent that the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.00% of the Fund's average daily net assets. Excluded Fund Fees and 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


23


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

associated with investments in any company that is an investment company (including an exchange-traded fund) 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, 2009, 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		  
  0.375 %     0.067 %     0.003 %     0.445 %  

 

        

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, 2009 was $9,919 and $5,796, respectively. The compensation and expenses of the CCO are included expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $245,979,951 and $118,937,823, respectively.

5.  Guarantees

In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as it involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 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.


24


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, less than 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 99.97% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     4,229,495     $ 71,744,587       21,710,901     $ 377,255,235    
Shares issued to shareholders
in reinvestment of distributions		     502,393       8,309,577       8,772,878       152,047,372    
Shares repurchased     (990,270 )     (17,026,926 )     (1,914,307 )     (37,516,039 )  
Purchase premiums     —       16,056       —       100,056    
Redemption fees     —       5,760       —       204,755    
Net increase (decrease)     3,741,618     $ 63,049,054       28,569,472     $ 492,091,379    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 142,537,541     $ 26,546,129     $ 89,210,907     $ 6,698,690     $ —     $ 68,456,011    
GMO Asset Allocation
Bond Fund, Class VI		     —       39,722,093       111,582       —       —       40,645,965    
GMO Domestic Bond
Fund, Class VI		     50,663,671       —       —       625,454       2,921,246       41,279,161 5   
GMO Emerging Country
Debt Fund, Class IV		     4,571,097       93,844       —       93,844       —       6,120,331    
GMO Flexible Equities
Fund, Class VI		     23,107,183       12,054,954       —       —       —       47,321,407    

 


25


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value, end
of period		  
GMO Inflation Indexed
Plus Bond Fund,
Class VI		   $ 18,670,080     $ —     $ —     $ 1,157,641 *    $ —     $ 21,143,521    
GMO International Growth
Equity Fund, Class IV		     150,367,034       35,429,437       12,553,109       5,492,236       —       230,067,534    
GMO International Intrinsic
Value Fund, Class IV		     142,927,020       30,311,441       12,758,109       2,864,373       —       238,641,276    
GMO International Small
Companies Fund,
Class III		     —       25,198,789       —       92,570       —       27,616,407    
GMO Quality Fund,
Class VI		     349,870,292       75,059,985       85,000       5,420,743       —       525,358,439    
GMO Special Situations
Fund, Class VI		     27,779,151       528,971       —       —       —       29,921,007    
GMO Strategic Fixed
Income Fund, Class VI		     91,316,446       —       —       343,372       —       84,579,555 t   
GMO U.S. Core Equity
Fund, Class VI		     49,793,872       1,034,286       —       666,836       —       64,987,648    
GMO World Opportunity
Overlay Fund		     7,149,055       —       —       —       —       7,542,545 o   
Totals   $ 1,058,752,442     $ 245,979,929     $ 114,718,707     $ 23,455,759     $ 2,921,246     $ 1,433,680,807    

 

5  The Fund received return of capital distributions in the amount of $11,980,199. Please note that in early 2010, Form 1099-DIV is anticipated to be sent to applicable shareholders that will state the actual tax characterization of all distributions paid in 2009.

*  A significant portion of the dividend is expected to be a return of capital for tax purposes. Please note that in early 2010, Form 1099-DIV is anticipated to be sent to applicable shareholders that will state the actual tax characterization of all distributions paid in 2009.

t  The Fund received return of capital distributions in the amount of $20,069,319. Please note that in early 2010, Form 1099-DIV is anticipated to be sent to applicable shareholders that will state the actual tax characterization of all distributions paid in 2009.

o  The Fund received return of capital distributions in the amount of $653,296.

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. Effective September 14, 2009, the premium on cash purchases was 0.00% of the amount invested and the fee an cash redemptions was 0.00% of the amount redeemed.


26



GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered that the Fund is intended to complement other strategies offered by the Manager and is not intended to stand on its own, and concluded that the usefulness of the Fund's performance relative to its benchmark was limited because the Fund is not managed to a benchmark. The Trustees also considered the qualifications and experience of the personnel resp onsible 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


27


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

advisory fees paid to the Manager by other funds of the Trust in which it invests. The Trustees also considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 (including the effect of recent market events and changes in assets under management and revenues on such profitability); 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


28


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


29


GMO Strategic Opportunities Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.45 %   $ 1,000.00     $ 1,274.70     $ 2.58    
2) Hypothetical     0.45 %   $ 1,000.00     $ 1,022.94     $ 2.29    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, 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 Emerging Country Debt Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     101.1 %  
Loan Participations     6.3    
Short-Term Investments     2.6    
Loan Assignments     1.9    
Options Purchased     0.5    
Rights and Warrants     0.3    
Promissory Notes     0.2    
Forward Currency Contracts     0.0    
Written Options     (0.1 )  
Swaps (Market Value, see Schedule of Investments for Notional Values)     (1.4 )  
Reverse Repurchase Agreements     (11.5 )  
Other     0.1    
      100.0 %  

 

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


1


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Country/Region Summary**   % of Investments  
Russia     11.9 %  
Argentina     8.4    
Brazil     8.2    
Philippines     8.1    
United States     7.2    
Mexico     7.1    
Venezuela     6.0    
Colombia     5.6    
Uruguay     4.3    
Turkey     3.3    
Indonesia     3.1    
Peru     2.7    
Ukraine     2.1    
Vietnam     1.9    
Congo Republic (Brazzaville)     1.8    
Ivory Coast     1.8    
Albania     1.5    
El Salvador     1.5    
Egypt     1.5    
Dominican Republic     1.4    
Aruba     1.1    
Iraq     1.1    
Pakistan     0.9    
South Korea     0.9    
Sri Lanka     0.9    
Serbia     0.7    
Africa     0.7    
Israel     0.7    
South Africa     0.6    
Trinidad and Tobago     0.6    
Bosnia     0.5    
Belize     0.4    
Jamaica     0.4    
Tunisia     0.4    
Nigeria     0.4    
Chile     0.4    
Gabon     0.3    
India     0.3    
Costa Rica     0.2    
Kazakhstan     0.2    

 


2


GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Country/Region Summary**   % of Investments  
Nicaragua     0.2 %  
Ecuador     0.2    
Panama     0.2    
Malaysia     0.2    
Qatar     0.2    
Georgia     0.2    
Bulgaria     0.1    
Lebanon     (0.1 )  
Romania     (0.1 )  
Austria     (0.4 )  
United Kingdom     (0.6 )  
Italy     (0.6 )  
Greece     (0.6 )  
      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 table is based on duration adjusted exposures, taking into account the market value of securities and the notional amounts of swaps and other derivative contracts. Duration is based on the Manager's models. The greater the duration of a bond, the greater its contribution to the concentration percentage. Credit default swap exposures (positive for long positions and negative for short positions) are factored into the duration-adjusted exposure using the reference security and applying the same methodology to that security. The table reflects net country exposures, including exposures achieved with leveraging associated with reverse repurchase agreements.


3



GMO Emerging Country Debt Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value   Description   Value ($)  
        DEBT OBLIGATIONS — 96.5%  
        Albania — 0.0%  
        Foreign Government Obligations  
USD     1,126,841     Republic of Albania Par Bond, Zero Coupon, due 08/31/25     385,942    
        Argentina — 9.8%  
        Foreign Government Obligations — 8.1%  
USD     9,000,000     Province of Buenos Aires, Reg S, Step Up, 3.00%, due 05/15/35     2,385,000    
USD     10,000,000     Republic of Argentina, 8.88%, due 03/01/29 (a)      2,500,000    
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, 0.00%, due 10/15/04 (a) (b)      5,152,000    
USD     2,587,924     Republic of Argentina Capitalization Bond, Series 2031, 12.00%,
due 06/19/31 (a) 		     646,981    
EUR     7,455,374     Republic of Argentina Discount Bond, 7.82%, due 12/31/33     5,237,129    
USD     23,688,554     Republic of Argentina Discount Bond, 8.28%, due 12/31/33     12,531,245    
DEM     3,830,000     Republic of Argentina Discount Bond, Series DM,
6 mo. DEM LIBOR + .81%, 3.00%, due 03/31/23 (a) 		     1,347,525    
EUR     214,800,000     Republic of Argentina GDP Linked, 1.99%, due 12/15/35 (c)      13,395,265    
USD     71,474     Republic of Argentina GDP Linked, 2.28%, due 12/15/35 (c)      3,631    
ARS     28,000,000     Republic of Argentina GDP Linked, 2.45%, due 12/15/35 (b) (c)      284,209    
DEM     5,000,000     Republic of Argentina Global Bond, Step Down, 9.00%, due 11/19/08 (a) (b)      769,637    
USD     31,390,000     Republic of Argentina Global Bond, EMTN, Reg S, 3 mo. LIBOR + 5.75%,
6.36%, due 04/06/04 (a) 		     5,807,150    
USD     24,819,166     Republic of Argentina Global Bond, Series 2018, 12.25%, due 06/19/18 (a)      6,204,791    
EUR     3,500,000     Republic of Argentina Global Bond, Series FEB, Step Down, 8.00%,
due 02/26/08 (a) 		     1,128,959    
ARS     28,000,000     Republic of Argentina Global Par Bond, Step Up, 0.63%, due 12/31/38 (b)      1,614,336    
USD     21,000,000     Republic of Argentina Par Bond, Step Up, 1.33%, due 12/31/38     4,914,000    
EUR     284,000,000     Republic of Argentina Par Bond, Step Up, 1.20%, due 12/31/38     95,678,415    
USD     1,815,200     Republic of Argentina Pro 4, 2.00%, due 12/28/10 (a)      76,797    
      161,479,820    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Judgments — 1.7%  
USD     3,540,000     Republic of Argentina, 8.88%, due 03/01/29 (a) (b) (d)      663,750    
USD     43,132,075     Republic of Argentina Capitalization Bond, Series 2031, 12.00%,
due 06/19/31 (a) (b) (d) 		     8,087,264    
USD     32,000,000     Republic of Argentina Discount Bond, Series L-GL, 6 mo. LIBOR + .81%,
2.57%, due 03/31/23 (a) (b) (d) 		     11,520,000    
USD     26,545,000     Republic of Argentina Global Bond, 12.13%, due 02/25/19 (a) (b) (d)      4,977,187    
USD     8,000,000     Republic of Argentina Global Bond, 9.75%, due 09/19/27 (a) (b) (d)      1,500,000    
USD     6,931,000     Republic of Argentina Global Bond, 12.00%, due 02/01/20 (a) (b) (d)      1,299,563    
USD     198,230     Republic of Argentina Global Bond, Series 2008, Step Up, 15.50%,
due 12/29/49 (a) (b) (d) 		     37,168    
USD     3,235,359     Republic of Argentina Global Bond, Series 2018, 12.25%, due 06/19/18 (a) (b) (d)      606,630    
USD     15,000,000     Republic of Argentina Global Par Bond, Series L-GP, Step Up, 6.00%,
due 03/31/23 (a) (b) (d) 		     5,400,000    
      34,091,562    
    Total Argentina     195,571,382    
        Aruba — 1.0%  
        Foreign Government Obligations  
USD     5,000,000     Government of Aruba, 6.19%, due 10/30/12 (b)      4,567,500    
USD     1,752,000     Government of Aruba, 6.80%, due 04/02/14 (b)      1,770,050    
USD     14,000,000     Government of Aruba, Reg S, 6.40%, due 09/06/15     13,974,786    
    Total Aruba     20,312,336    
        Belize — 0.3%  
        Foreign Government Obligations  
USD     11,425,000     Government of Belize, Reg S, Step Up, 4.25%, due 02/20/29     6,169,500    
        Bosnia & Herzegovina — 0.5%  
        Foreign Government Obligations  
DEM     21,457,400     Bosnia & Herzegovina, Series A, 6 mo. DEM LIBOR + .81%, 2.29%,
due 12/11/17		     10,380,486    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Brazil — 4.0%  
        Corporate Debt — 0.5%  
USD     9,000,000     Petrobras International Finance Co., 7.88%, due 03/15/19     10,147,500    
        Foreign Government Obligations — 3.5%  
USD     7,575,000     Brazilian Government International Exit Bonds, 6.00%, due 09/15/13     7,726,500    
USD     84,778     Brazilian Government International Exit Bonds, Odd Lot, 6.00%, due 09/15/13     82,659    
USD     103,813     Brazilian Government International Exit Bonds, Odd Lot, 6.00%, due 09/15/13     101,218    
USD     107,999     Brazilian Government International Exit Bonds, Odd Lot, 6.00%, due 09/15/13     105,299    
USD     42,000,000     Republic of Brazil, 8.25%, due 01/20/34 (e)      51,975,000    
USD     8,000,000     Republic of Brazil, 7.13%, due 01/20/37 (e)      8,840,000    
      68,830,676    
    Total Brazil     78,978,176    
        Colombia — 1.1%  
        Foreign Government Agency — 0.4%  
USD     8,000,000     Ecopetrol SA, 144A, 7.63%, due 07/23/19     8,520,000    
        Foreign Government Obligations — 0.7%  
USD     8,000,000     Republic of Colombia, 8.70%, due 02/15/16     9,200,000    
USD     3,800,000     Republic of Colombia, 11.85%, due 03/09/28     4,465,000    
      13,665,000    
    Total Colombia     22,185,000    
        Congo Republic (Brazzaville) — 2.2%  
        Foreign Government Obligations  
USD     109,865,600     Republic of Congo, 144A, 3.00%, due 06/30/29     42,298,256    
USD     1,425,000     Republic of Congo, Reg S, 3.00%, due 06/30/29     548,625    
    Total Congo Republic (Brazzaville)     42,846,881    
        Costa Rica — 0.2%  
        Foreign Government Obligations  
USD     3,710,000     Republic of Costa Rica, Reg S, 10.00%, due 08/01/20     4,581,850    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Dominican Republic — 2.3%  
        Asset-Backed Securities — 0.5%  
USD     15,251,174     Autopistas Del Nordeste Ltd., Reg S, 9.39%, due 04/15/24     9,150,704    
        Foreign Government Obligations — 1.8%  
USD     9,000,000     Dominican Republic, Reg S, 8.63%, due 04/20/27     6,840,000    
USD     42,557,000     Dominican Republic Discount Bond, 6 mo. LIBOR + .81%, 2.13%,
due 08/30/24		     28,938,760    
      35,778,760    
    Total Dominican Republic     44,929,464    
        Ecuador — 0.2%  
        Foreign Government Obligations  
USD     13,587,000     Republic of Ecuador, Step Up, 10.00%, due 08/15/30 (a)      4,076,100    
USD     2,001,290     Republic of Ecuador PDI (Global Bearer Capitalization Bond), PIK,
6 mo. LIBOR + .81%, 1.63%, due 02/27/15 (b) 		     456,294    
    Total Ecuador     4,532,394    
        Egypt — 0.1%  
        Corporate Debt  
USD     1,189,522     Petroleum Export, 144A, 5.27%, due 06/15/11     1,144,915    
        El Salvador — 1.1%  
        Foreign Government Obligations  
USD     24,700,000     Republic of El Salvador, Reg S, 7.65%, due 06/15/35     22,230,000    
        Gabon — 0.4%  
        Foreign Government Obligations  
USD     7,000,000     Gabonese Republic, Reg S, 8.20%, due 12/12/17     6,851,250    
        Grenada — 0.1%  
        Foreign Government Obligations  
USD     6,000,000     Republic of Grenada, Reg S, Step Up, 2.50%, due 09/15/25     2,220,000    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Indonesia — 1.4%  
        Foreign Government Agency  
USD     31,000,000     Majapahit Holding BV, 144A, 7.88%, due 06/29/37     28,210,000    
        Iraq — 0.5%  
        Foreign Government Obligations  
USD     15,000,000     Republic of Iraq, Reg S, 5.80%, due 01/15/28 (e)      10,350,000    
        Israel — 0.7%  
        Foreign Government Agency  
USD     13,000,000     Israel Electric Corp. Ltd., 144A, 7.25%, due 01/15/19 (e)      13,601,250    
        Ivory Coast — 2.0%  
        Foreign Government Obligations  
FRF     37,500,000     Ivory Coast Discount Bond, Series FRF, Step Up, 4.00%, due 03/31/28 (a)      3,196,306    
USD     46,850,000     Ivory Coast FLIRB, Step Up, 4.00%, due 03/31/18 (a)      14,992,000    
FRF     85,905,000     Ivory Coast FLIRB, Series FRF, Step Up, 4.00%, due 03/31/18 (a)      5,632,382    
FRF     256,889,500     Ivory Coast PDI, Series FRF, Step Up, 2.90%, due 03/30/18 (a)      16,843,023    
    Total Ivory Coast     40,663,711    
        Jamaica — 0.3%  
        Foreign Government Agency — 0.2%  
USD     2,500,000     Air Jamaica Ltd., Reg S, 8.13%, due 06/14/27     1,675,000    
USD     3,857,143     Air Jamaica Ltd., Reg S, 9.38%, due 07/08/15     3,394,286    
      5,069,286    
        Foreign Government Obligations — 0.1%  
USD     2,500,000     Government of Jamaica, 8.00%, due 03/15/39     1,625,000    
    Total Jamaica     6,694,286    
        Malaysia — 1.2%  
        Asset Backed Securities  
MYR     45,000,000     Transshipment Megahub Berhad, Series C, 5.45%, due 11/03/09     12,578,334    
MYR     50,000,000     Transshipment Megahub Berhad, Series F, 6.70%, due 11/02/12     11,992,780    
    Total Malaysia     24,571,114    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Mexico — 7.2%  
        Foreign Government Agency — 4.6%  
GBP     7,689,000     Pemex Project Funding Master Trust, EMTN, 7.50%, due 12/18/13     13,330,943    
EUR     26,500,000     Pemex Project Funding Master Trust, Reg S, 5.50%, due 02/24/25     31,816,944    
EUR     30,000,000     Pemex Project Funding Master Trust, Reg S, 6.38%, due 08/05/16     45,911,016    
      91,058,903    
        Foreign Government Obligations — 2.6%  
GBP     29,994,000     United Mexican States, GMTN, 6.75%, due 02/06/24     44,922,469    
USD     8,000,000     United Mexican States, 6.05%, due 01/11/40 (e)      7,500,000    
      52,422,469    
    Total Mexico     143,481,372    
        Nicaragua — 0.2%  
        Foreign Government Obligations  
USD     4,926,395     Republic of Nicaragua BPI, Series E, 5.00%, due 02/01/11     4,335,228    
        Pakistan — 0.7%  
        Foreign Government Obligations  
USD     20,000,000     Islamic Republic of Pakistan, Reg S, 7.88%, due 03/31/36     14,800,000    
        Peru — 1.5%  
        Foreign Government Obligations  
USD     12,452,000     Peru Enhanced Pass-Through Finance Ltd., Reg S, Zero Coupon, due 06/02/25     4,482,720    
USD     25,000,000     Peru Par Bond, Series 30 Yr., Step Up, 3.00%, due 03/07/27     20,250,000    
USD     4,625,077     Peru Trust, Series 97-I-P, Class A3, Zero Coupon, due 12/31/15 (a) (b)      3,381,323    
USD     1,595,995     Peru Trust II, Series 98-A LB, Zero Coupon, due 02/09/16 (a) (b)      1,166,807    
USD     1,539,783     Racers, Series 1998 I-P, Zero Coupon, due 03/10/16 (a) (b)      1,125,712    
    Total Peru     30,406,562    
        Philippines — 7.3%  
        Foreign Government Agency — 3.8%  
USD     6,000,000     National Power Corp., Global Bond, 9.88%, due 03/16/10     5,900,625    
USD     8,500,000     National Power Corp., Global Bond, 8.40%, due 12/15/16     9,392,500    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Foreign Government Agency — continued  
USD     55,450,000     National Power Corp., Global Bond, 9.63%, due 05/15/28     61,549,500    
      76,842,625    
        Foreign Government Obligations — 3.5%  
USD     35,651,000     Central Bank of Philippines, Series A, 8.60%, due 06/15/27     39,438,919    
USD     9,000,000     Philippine Government International Bond, 8.38%, due 06/17/19     10,518,300    
EUR     8,000,000     Republic of Philippines, 9.13%, due 02/22/10     11,883,182    
USD     6,843,000     Republic of Philippines, 8.38%, due 02/15/11     7,390,440    
      69,230,841    
    Total Philippines     146,073,466    
        Qatar — 0.2%  
        Foreign Government Agency  
USD     3,500,000     Qtel International Finance Ltd., 144A, 7.88%, due 06/10/19     3,815,000    
        Russia — 9.9%  
        Corporate Debt — 8.6%  
EUR     11,000,000     Gaz Capital (Gazprom), EMTN, 5.36%, due 10/31/14     14,961,400    
EUR     33,000,000     Gaz Capital (Gazprom), EMTN, Reg S, 5.88%, due 06/01/15     44,943,337    
EUR     21,000,000     Gaz Capital (Gazprom), Reg S, 5.44%, due 11/02/17     26,191,859    
USD     17,000,000     Gaz Capital SA, 144A, 8.13%, due 07/31/14     17,531,250    
USD     11,838,796     Gazprom International SA, Reg S, 7.20%, due 02/01/20     11,838,796    
USD     16,474,234     Gazstream SA, Reg S, 5.63%, due 07/22/13     16,515,420    
USD     8,000,000     Sberbank Capital SA, EMTN, 6.48%, due 05/15/13     8,112,000    
USD     14,900,000     Transcapital Ltd. (Transneft), 144A, 8.70%, due 08/07/18     15,458,750    
USD     19,000,000     VTB Capital SA, Reg S, 6.25%, due 06/30/35     16,910,000    
      172,462,812    
        Foreign Government Agency — 1.3%  
USD     22,500,000     RSHB Capital SA, 144A, 6.30%, due 05/15/17     20,090,250    
USD     2,300,000     RSHB Capital SA, 144A, 7.75%, due 05/29/18     2,219,500    
USD     2,500,000     RSHB Capital SA, 144A, 9.00%, due 06/11/14     2,652,750    
      24,962,500    
    Total Russia     197,425,312    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Serbia — 0.7%  
        Foreign Government Obligations  
USD     14,966,026     Republic of Serbia, Reg S, Step Up, 3.75%, due 11/01/24     13,619,084    
        South Africa — 0.4%  
        Foreign Government Agency — 0.1%  
ZAR     163,000,000     Eskom Holdings Ltd., Zero Coupon, due 12/31/32     1,549,228    
        Foreign Government Obligations — 0.3%  
USD     2,000,000     Republic of South Africa, 5.88%, due 05/30/22     1,985,000    
USD     4,000,000     Republic of South Africa, 6.88%, due 05/27/19     4,295,000    
      6,280,000    
    Total South Africa     7,829,228    
        South Korea — 1.2%  
        Foreign Government Agency — 0.4%  
USD     4,000,000     Korea Gas Corp, 144A, 6.00%, due 07/15/14     4,188,208    
USD     4,000,000     Korea Southern Power Co., Reg S, 5.38%, due 04/18/13     4,055,200    
      8,243,408    
        Foreign Government Obligations — 0.8%  
USD     15,000,000     Republic of Korea, 5.75%, due 04/16/14     15,807,000    
    Total South Korea     24,050,408    
        Sri Lanka — 1.0%  
        Foreign Government Obligations  
USD     19,000,000     Republic of Sri Lanka, 144A, 8.25%, due 10/24/12     18,857,500    
        Trinidad and Tobago — 0.6%  
        Foreign Government Agency  
USD     11,000,000     Petroleum Company of Trinidad and Tobago Ltd., 144A, 9.75%, due 08/14/19     11,948,750    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Tunisia — 0.2%  
        Foreign Government Agency  
JPY     360,000,000     Banque Centrale De Tunisie, Series 6BR, 4.35%, due 08/15/17     3,605,029    
        Turkey — 0.5%  
        Foreign Government Obligations  
USD     9,000,000     Republic of Turkey, 7.50%, due 07/14/17     9,765,000    
        Ukraine — 4.8%  
        Foreign Government Agency — 0.8%  
USD     9,000,000     Credit Suisse First Boston, the EXIM of Ukraine, 6.80%, due 10/04/12     6,480,000    
USD     10,000,000     Dresdner Kleinwort Wasserstein for CJSC, the EXIM of Ukraine, 7.75%,
due 09/23/09		     9,800,000    
      16,280,000    
        Foreign Government Obligations — 4.0%  
USD     18,000,000     City of Kyiv, Reg S, 8.25%, due 11/26/12     13,455,000    
CHF     70,000,000     Ukraine Government, 3.50%, due 09/15/18     66,106,337    
      79,561,337    
    Total Ukraine     95,841,337    
        United States — 19.4%  
        Asset-Backed Securities — 7.6%  
USD     4,000,000     Aircraft Finance Trust, Series 99-1A, Class A1, 144A, 1 mo. LIBOR + .48%,
0.75%, due 05/15/24		     1,160,000    
USD     51,040,000     Capital One Auto Finance Trust, Series 06-C, Class A4, FGIC,
1 mo. LIBOR + .03%, 0.30%, due 05/15/13 (e) 		     48,239,484    
USD     17,228,016     Capital One Auto Finance Trust, Series 07-C, Class A3B, FGIC,
1 mo. LIBOR + .51%, 0.78%, due 04/16/12		     17,035,752    
USD     208,097     Chevy Chase Mortgage Funding Corp., Series 03-4A, Class A1, 144A,
AMBAC, 1 mo. LIBOR + .34%, 0.61%, due 10/25/34		     108,210    
USD     1,070,431     CHYPS CBO Ltd., Series 97-1A, Class A2A, 144A, 6.72%, due 01/15/10 (b)      —    
USD     25,000,000     Citibank Credit Card Issuance Trust, Series 06-A8, Class A8,
3mo. LIBOR + .04%, 0.55%, due 12/17/18 (e) 		     22,648,425    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Asset-Backed Securities — continued  
USD     1,583,824     CNL Commercial Mortgage Loan Trust, Series 03-2A, Class A1, 144A,
AMBAC, 1 mo. LIBOR + .44%, 0.71%, due 10/25/30		     1,029,485    
USD     23,631,239     Countrywide Home Equity Loan Trust, Series 05-F, Class 2A, AMBAC,
1 mo. LIBOR + .24%, 0.51%, due 12/15/35		     8,838,084    
USD     17,760,585     Countrywide Home Equity Loan Trust, Series 05-H, Class 2A, FGIC,
1 mo. LIBOR + .24%, 0.51%, due 12/15/35		     5,328,175    
USD     12,518,305     Countrywide Home Equity Loan Trust, Series 06-D, Class 2A, XL,
1 mo. LIBOR + .20%, 0.47%, due 05/15/36		     4,957,249    
USD     5,291,278     First Franklin Mortgage Loan Asset Backed Certificates, Series 05-FF10,
Class A6M, 1 mo. LIBOR + .35%, 0.62%, due 11/25/35		     1,055,081    
USD     15,595,193     Greenpoint Morgage Funding Trust, Series 07-HE1, Class A1, XL,
1 mo. LIBOR + .15%, 0.42%, due 12/13/32		     1,803,678    
USD     4,315,162     GSAMP Trust, Series 05-HE6, Class A2B, 1 mo. LIBOR + .19%, 0.46%,
due 11/25/35		     3,823,794    
USD     9,250,000     Home Equity Asset Trust, Series 07-1, Class 2A4, 1 mo. LIBOR + .23%,
0.50%, due 05/25/37		     925,000    
USD     10,000,000     IXIS Real Estate Capital Trust, Series 06-HE2, Class A3,
1 mo. LIBOR + .16%, 0.43%, due 08/25/36		     3,300,000    
USD     13,000,000     Master Asset-Backed Securities Trust, Series 06-NC3, Class A4,
1 mo. LIBOR + .16%, 0.43%, due 10/25/36		     3,748,290    
USD     11,500,130     Morgan Stanley ABS Capital I, Series 06-NC3, Class A2C,
1 mo. LIBOR + .17%, 0.44%, due 03/25/36		     4,571,302    
USD     10,000,000     Morgan Stanley ACES SPC, Series 04-15, Class I, 144A,
3 mo. LIBOR + .45%, 1.06%, due 12/20/09		     9,505,000    
USD     15,000,000     Morgan Stanley IXIS Real Estate Capital Trust, Series 06-2, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 11/25/36		     4,050,000    
USD     15,200,000     Morgan Stanley IXIS Real Estate Capital Trust, Series 06-2, Class A4,
1 mo. LIBOR + .22%, 0.49%, due 11/25/36		     4,788,000    
USD     12,868,000     Option One Mortgage Loan Turst, Series 06-3, Class 2A4,
1 mo. LIBOR + .22%, 0.49%, due 02/25/37		     2,732,942    
USD     8,000,000     Wamu Asset-Backed Certificates, Series 07-HE2, Class 2A4,
1 mo. LIBOR + .36%, 0.63%, due 04/25/37		     2,024,000    
      151,671,951    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        U.S. Government — 11.8%  
USD     50,000,000     U.S. Treasury Bond, 5.25%, due 02/15/29 (f)      57,281,250    
USD     75,692,960     U.S. Treasury Inflation Indexed Bond, 0.88%, due 04/15/10 (c) (f)      75,574,728    
USD     100,000,000     U.S. Treasury Principal Strip Bond, due 11/15/21 (e)      59,873,100    
USD     30,000,000     U.S. Treasury Strip Coupon Bond, due 05/15/23 (e)      16,617,510    
USD     50,000,000     U.S. Treasury Strip Coupon Bond, due 11/15/23 (e)      26,869,050    
      236,215,638    
    Total United States     387,887,589    
        Uruguay — 4.9%  
        Foreign Government Obligations  
USD     51,851,571     Republic of Uruguay, 7.63%, due 03/21/36     52,758,973    
EUR     2,000,000     Republic of Uruguay, 7.00%, due 06/28/19     2,895,871    
USD     14,533,294     Republic of Uruguay, PIK, 7.88%, due 01/15/33     15,187,292    
EUR     10,000,000     Republica Oriental de Uruguay, 6.88%, due 01/19/16     14,586,873    
JPY     1,153,600,000     Republica Oriental de Uruguay, Series 3BR, Step Up, 2.50%, due 03/14/11 (b)      12,002,324    
    Total Uruguay     97,431,333    
        Venezuela — 5.5%  
        Foreign Government Agency — 0.3%  
USD     16,000,000     Petroleos de Venezuela, 5.38%, due 04/12/27     6,880,000    
        Foreign Government Obligations — 5.2%  
EUR     10,000,000     Republic of Venezuela, 7.00%, due 03/16/15     9,891,835    
EUR     7,400,000     Republic of Venezuela, 11.13%, due 07/25/11     10,953,415    
USD     22,000,000     Republic of Venezuela, Reg S, 9.25%, due 05/07/28     15,180,000    
USD     69,500,000     Republic of Venezuela, Reg S, 9.00%, due 05/07/23     47,955,000    
USD     34,000,000     Venezuela Government International Bond, Reg S, 6.00%, due 12/09/20     19,006,000    
      102,986,250    
    Total Venezuela     109,866,250    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Vietnam — 0.9%  
        Foreign Government Obligations  
USD     19,750,000     Socialist Republic of Vietnam, Series 30 Yr., Step Up, 4.00%, due 03/12/28     14,615,000    
USD     4,000,000     Socialist Republic of Vietnam, Series 30 Yr., 6 mo. LIBOR + .81%, 2.81%,
due 03/13/28		     3,080,000    
    Total Vietnam     17,695,000    
    TOTAL DEBT OBLIGATIONS (COST $2,262,496,357)     1,926,143,385    
        LOAN ASSIGNMENTS — 1.9%  
        Angola — 0.1%  
USD     1,300,000     Angolan Ministry of Finance Loan Agreement, 1 mo. LIBOR + 5.50%,
due 07/08/13		     970,320    
USD     1,300,000     Angolan Ministry of Finance Loan Agreement, 1 mo. LIBOR + 5.50%,
due 03/07/13		     983,320    
    Total Angola     1,953,640    
        Dominican Republic — 0.2%  
USD     5,200,000     Dominican Republic, 6 mo. LIBOR + 1.75%, 3.77%, due 08/15/15     3,380,000    
        Indonesia — 0.9%  
JPY     92,880,000     Republic of Indonesia Loan Agreement, 6 mo. JPY LIBOR + .88%, 1.43%,
due 03/28/13		     848,447    
USD     1,892,000     Republic of Indonesia Loan Agreement, 6 mo. LIBOR +.88%, 1.50%,
due 03/29/13		     1,608,200    
USD     3,665,533     Republic of Indonesia Loan Agreement, dated June 14, 1995,
6 mo. LIBOR + .88%, 1.56%, due 12/14/19		     2,565,872    
USD     3,665,533     Republic of Indonesia Loan Agreement, dated June 14, 1995,
6 mo. LIBOR + .88%, 1.56%, due 12/14/19		     2,565,872    
USD     4,888,936     Republic of Indonesia Loan Agreement, dated June 14, 1995,
6 mo. LIBOR + .88%, 1.56%, due 12/14/19		     3,422,255    
USD     2,418,159     Republic of Indonesia Loan Agreement, dated September 29, 1994, 7.24%,
due 12/01/19		     2,055,435    
USD     2,663,791     Republic of Indonesia Loan Agreement, dated September 29, 1994,
6 mo. LIBOR + .75%, 2.13%, due 12/14/19		     2,264,222    
EUR     2,299,088     Republic of Indonesia, Indonesia Paris Club Debt, due 06/01/21 (g)      2,455,498    
    Total Indonesia     17,785,801    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Russia — 0.3%  
USD     3,955,201     Russia Foreign Trade Obligations (b) (g)      4,860,750    
DEM     45,916     Russia Foreign Trade Obligations (b) (g)      29,313    
FIM     1,740,000     Russia Foreign Trade Obligations (b) (g)      386,013    
GBP     14,162     Russia Foreign Trade Obligations (b) (g)      32,688    
USD     80,572     Russia Foreign Trade Obligations (b) (g)      95,674    
USD     265,723     Russia Foreign Trade Obligations (b) (g)      320,704    
    Total Russia     5,725,142    
        Vietnam — 0.4%  
USD     16,000,000     Vietnam Shipbuilding Industry Group Loan Agreement,
6 mo. LIBOR + 1.50%, 2.61%, due 06/26/15 (b) 		     9,042,514    
    TOTAL LOAN ASSIGNMENTS (COST $43,019,330)     37,887,097    
        LOAN PARTICIPATIONS — 6.3%  
        Egypt — 0.2%  
CHF     4,866,695     Paris Club Loan Agreement (Participation with Standard Chartered Bank),
due 01/03/24 (g) 		     3,979,155    
        Indonesia — 1.6%  
USD     451,142     Republic of Indonesia Loan Agreement (Participation with Citibank),
6 mo. LIBOR +.88%, 1.56%, due 12/14/19		     315,800    
USD     451,142     Republic of Indonesia Loan Agreement (Participation with Citibank),
6 mo. LIBOR +.88%, 1.56%, due 12/14/19		     315,800    
USD     601,715     Republic of Indonesia Loan Agreement (Participation with Citibank),
6 mo. LIBOR +.88%, 1.56%, due 12/14/19		     421,201    
USD     18,185,473     Republic of Indonesia Loan Agreement (Participation with Deutsche Bank),
3 mo. LIBOR + 1.25%, 1.71%, due 02/12/13		     15,457,652    
JPY     549,107,990     Republic of Indonesia Loan Agreement (Participation with Deutsche Bank),
6 mo. LIBOR +.88%, 1.43%, due 03/29/13		     5,016,032    
USD     12,059,515     Republic of Indonesia Loan Agreement (Participation with Deutsche Bank),
6 mo. LIBOR +.88%, 2.67%, due 09/29/19		     10,250,588    
    Total Indonesia     31,777,073    

 

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, 2009 (Unaudited)

Par Value   Description   Value ($)  
        Iraq — 1.9%  
JPY     630,296,819     Republic of Iraq Paris Club Loan, T Chatani (Participation with Deutsche Bank),
4.85%, due 01/01/28		     4,089,783    
USD     3,402,097     Republic of Iraq Paris Club Loan Agreement (Participation with Credit Suisse),
6 mo. LIBOR +.50%, 1.30%, due 01/01/28		     1,244,827    
JPY     4,823,814,739     Republic of Iraq Paris Club Loan Agreement (Participation with Deutsche Bank),
4.85%, due 01/01/28		     31,641,218    
    Total Iraq     36,975,828    
        Russia — 1.4%  
EUR     57,042,402     Russian Foreign Trade Obligations
(Participation with GML International Ltd.) (g) (b) 		     20,994,040    
USD     5,599,139     Russian Foreign Trade Obligations
(Participation with GML International Ltd.) (g) 		     7,296,286    
    Total Russia     28,290,326    
        Vietnam — 1.2%  
JPY     2,624,491,076     Socialist Republic of Vietnam Loan Agreement
(Participation with Deutsche Bank), 6 mo. JPY LIBOR + .60%, 1.40%,
due 09/01/17		     23,974,395    
    TOTAL LOAN PARTICIPATIONS (COST $109,171,206)     124,996,777    
        PROMISSORY NOTES — 0.2%  
        Dominican Republic — 0.1%  
USD     1,089,012     Dominican Republic Promissory Notes, 0.00%, due 09/15/09     1,078,122    
USD     817,249     Dominican Republic Promissory Notes, 0.00%, due 09/15/11     506,695    
USD     817,249     Dominican Republic Promissory Notes, 0.00%, due 09/15/10     653,799    
    Total Dominican Republic     2,238,616    
        Ghana — 0.0%  
USD     3,312,500     Republic of Ghana Promissory Notes, 0.00%, due 08/09/10 (a) (b) (h) (k)      331,250    
        Nigeria — 0.1%  
USD     33,450,000     Central Bank of Nigeria Promissory Notes, Series RC, 5.09%, due 01/05/10     836,250    
    TOTAL PROMISSORY NOTES (COST $15,689,845)     3,406,116    

 

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, 2009 (Unaudited)

Principal Amount /
Shares		   Description   Value ($)  
        OPTIONS PURCHASED — 0.1%  
        Options on Interest Rates — 0.0%  
TWD     1,849,200,000     TWD Interest Rate Cap Call Option, Expires 03/16/10, Strike 2.19%     56    
TWD     1,849,200,000     TWD Interest Rate Floor Call Option, Expires 03/16/10, Strike 2.19%     668,356    
    Total Options on Interest Rates     668,412    
        Options on Interest Rate Swaps — 0.1%  
KRW     50,000,000,000     KRW Swaption Call, Expires 03/21/11, Strike 5.64%     1,785,771    
KRW     50,000,000,000     KRW Swaption Put, Expires 03/21/11, Strike 5.64%     273,681    
    Total Options on Interest Rate Swaps     2,059,452    
    TOTAL OPTIONS PURCHASED (COST $4,251,983)     2,727,864    
        MUTUAL FUNDS — 5.0%  
        United States — 5.0%  
        Affiliated Issuers  
      3,976,082     GMO Short-Duration Collateral Fund     63,816,116    
      21,409     GMO Special Purpose Holding Fund (i)      13,488    
      264,323     GMO U.S. Treasury Fund     6,610,711    
      1,515,449     GMO World Opportunity Overlay Fund     29,339,087    
    Total United States     99,779,402    
    TOTAL MUTUAL FUNDS (COST $115,658,633)     99,779,402    
        RIGHTS AND WARRANTS — 0.5%  
        Nigeria — 0.1%  
      25,000     Central Bank of Nigeria Warrants, Expires 11/15/20 *      2,875,000    
        Uruguay — 0.0%  
      4,000,000     Banco Central Del Uruguay Value Recovery Rights, VRRB,
Expires 01/02/21 (b) * 		     —    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Venezuela — 0.4%  
    6,660     Republic of Venezuela Oil Warrants, Expires 04/15/20 *      166,500    
    214,770     Republic of Venezuela Oil Warrants, Expires 04/15/20 (b) (j) *      2,684,625    
    205,145     Republic of Venezuela Oil Warrants, Expires 04/15/20 *      5,128,625    
    Total Venezuela     7,979,750    
    TOTAL RIGHTS AND WARRANTS (COST $0)     10,854,750    
        SHORT-TERM INVESTMENTS — 2.2%  
        Money Market Funds — 2.2%  
    14,927,221     State Street Institutional Liquid Reserves Fund-Institutional Class     14,927,221    
    28,277,588     State Street Institutional Treasury Plus Money Market Fund-Institutional Class     28,277,588    
    TOTAL SHORT-TERM INVESTMENTS (COST $43,204,809)     43,204,809    
        TOTAL INVESTMENTS — 112.7%
(Cost $2,593,492,163)		     2,249,000,200    
        Other Assets and Liabilities (net) — (12.7%)     (253,037,898 )  
    TOTAL NET ASSETS — 100.0%   $ 1,995,962,302    

 

See accompanying notes to the financial statements.


19


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Sales #                               
9/29/09   CHF     60,000,000     $ 56,675,099     $ (202,916 )  
10/06/09   EUR     300,000,000       430,093,619       1,768,381    
9/15/09   GBP     20,000,000       32,557,985       432,014    
10/13/09   JPY     5,500,000,000       59,124,679       (1,032,427 )  
    $ 578,451,382     $ 965,052    

 

#  Fund sells foreign currency; buys USD.

Reverse Repurchase Agreements

Face Value   Description   Market Value  
USD     15,975,000     Barclays Bank, 0.40%, dated 08/20/09, to be repurchased on
demand at face value plus accrued interest.		   $ (15,975,678 )  
USD     25,812,500     Barclays Bank, 0.40%, dated 08/20/09, to be repurchased on
demand at face value plus accrued interest.		     (25,812,787 )  
USD     28,750,000     Barclays Bank, 0.40%, dated 08/20/09, to be repurchased on
demand at face value plus accrued interest.		     (28,750,319 )  
USD     24,901,667     Deutsche Bank, 1.00%, dated 07/14/09, to be repurchased on
demand at face value plus accrued interest.		     (24,934,177 )  
USD     27,391,833     JP Morgan Chase Bank, 1.00%, dated 07/14/09, to be
repurchased on demand at face value plus accrued interest.		     (27,427,595 )  
USD     1,968,931     JP Morgan Chase Bank, 0.50%, dated 02/26/09, to be
repurchased on demand at face value plus accrued interest.		     (1,996,455 )  
USD     16,462,000     JP Morgan Chase Bank, 1.75%, dated 08/05/09, to be
repurchased on demand at face value plus accrued interest.		     (16,479,605 )  

 

See accompanying notes to the financial statements.


20


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Reverse Repurchase Agreements — continued

Face Value   Description   Market Value  
USD     11,192,500     JP Morgan Chase Bank, 1.25%, dated 07/13/09, to be
repurchased on demand at face value plus accrued interest.		   $ (11,211,154 )  
USD     27,562,500     JP Morgan Chase Bank, 0.55%, dated 08/07/09, to be
repurchased on demand at face value plus accrued interest.		     (27,572,527 )  
USD     7,226,722     JP Morgan Chase Bank, 1.00%, dated 07/14/09, to be
repurchased on demand at face value plus accrued interest.		     (7,236,157 )  
USD     9,712,500     JP Morgan Chase Bank, 2.00%, dated 07/13/09, to be
repurchased on demand at face value plus accrued interest.		     (9,738,400 )  
USD     19,278,000     JP Morgan Chase Bank, 1.75%, dated 08/05/09, to be
repurchased on demand at face value plus accrued interest.		     (19,298,617 )  
USD     8,783,750     JP Morgan Chase Bank, 1.75%, dated 08/03/09, to be
repurchased on demand at face value plus accrued interest.		     (8,795,279 )  
    $ (225,228,750 )  

 

Average balance outstanding   $ (67,081,461 )  
Average interest rate     1.00 %  
Maximum balance outstanding   $ (227,019,903 )  
Average shares outstanding     295,876,992    
Average balance per share outstanding   $ (0.23 )  
Days outstanding     184    

 

Average balance outstanding was calculated based on daily balances outstanding during the period that the Fund has 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, 2009 (Unaudited)

Swap Agreements

Credit Default Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  10,000,000     USD   9/20/2009   JP Morgan   (Pay)     0.97 %     1.16 %   Gazprom     N/A         $ (43,139 )  
            Chase Bank                 OAO                  
  70,000,000     CHF   9/20/2009   Morgan Stanley   (Pay)     0.78 %     12.14 %   Government
of Ukraine		     N/A           180,301    
  849,572,575     RUB   11/5/2009   Deutsche
Bank AG		   Receive     1.45 %     3.77 %   Russia
Post Office		     849,572,575     RUB     13,903    
  10,000,000     USD   11/20/2009   JP Morgan
Chase Bank		   (Pay)     0.90 %     0.49 %   United
Mexican
States		     N/A           (34,945 )  
  10,000,000     USD   11/20/2009   JP Morgan
Chase Bank		   (Pay)     0.88 %     0.49 %   United
Mexican
States		     N/A           (33,924 )  
  7,000,000     USD   2/5/2010   Deutsche
Bank AG		   Receive     4.85 %     17.12 %   Government
of Ukraine		     7,000,000     USD     (333,968 )  
  3,000,000     USD   3/29/2010   JP Morgan
Chase Bank		   Receive     4.70 %     0.8 %   Arab
Republic of
Egypt		     3,000,000     USD     128,242    
  85,000,000     USD   6/20/2010   Deutsche
Bank AG		   (Pay)     2.10 %     N/A     Reference
security
within CDX
Index		     N/A           (738,083 )  
  75,000,000     USD   6/20/2010   Deutsche
Bank AG		   (Pay)     1.47 %     0.67 %   Republic of
Brazil		     N/A           (701,860 )  
  12,000,000     USD   6/20/2010   JP Morgan
Chase Bank		   (Pay)     3.87 %     13.36 %   Republic of
Argentina		     N/A           784,525    
  12,000,000     USD   6/20/2010   JP Morgan
Chase Bank		   (Pay)     4.00 %     13.36 %   Republic of
Argentina		     N/A           769,508    
  6,000,000     USD   7/20/2010   Deutsche
Bank AG		   (Pay)     3.80 %     13.87 %   Republic of
Argentina		     N/A           480,870    
  10,000,000     USD   7/20/2010   Deutsche
Bank AG		   (Pay)     3.77 %     13.87 %   Republic of
Argentina		     N/A           804,320    

 

See accompanying notes to the financial statements.


22


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  140,000,000     USD   7/20/2010   UBS AG   (Pay)     0.89 %     1.27 %   Republic of     N/A         $ 333,744    
                            Turkey                  
  5,000,000     USD   7/23/2010   Deutsche
Bank AG		   Receive     4.56 %     17.66 %   Government
of Ukraine		     5,000,000     USD     (509,653 )  
  7,000,000     USD   8/5/2010   Deutsche
Bank AG		   Receive     4.90 %     17.72 %   Government
of Ukraine		     7,000,000     USD     (733,052 )  
  3,000,000     USD   8/25/2010   Deutsche
Bank AG		   Receive     3.40 %     54.52 %   Deutsche
Bank Loan to
Ukrtelekom		     3,000,000     USD     (1,090,943 )  
  30,000,000     USD   9/20/2010   JP Morgan
Chase Bank		   (Pay)     0.97 %     2.73 %   Gazprom
OAO		     N/A           422,076    
  35,000,000     USD   9/20/2010   JP Morgan
Chase Bank		   (Pay)     0.70 %     1.28 %   Republic of
Philippines		     N/A           167,747    
  20,000,000     USD   10/18/2010   JP Morgan
Chase Bank		   Receive     2.00 %     4.76 %   VTB
Leasing		     20,000,000     USD     (462,863 )  
  20,000,000     USD   10/20/2010   Goldman Sachs   (Pay)     2.74 %     1.44 %   Petroleos
Mexicanos		     N/A           (496,872 )  
  5,000,000     USD   10/25/2010   Deutsche
Bank AG		   Receive     4.60 %     17.3 %   Government
of Ukraine		     5,000,000     USD     (567,174 )  
  10,000,000     USD   12/20/2010   JP Morgan
Chase Bank		   (Pay)     3.57 %     15.14 %   Republic of
Argentina		     N/A           1,301,565    
  5,000,000     USD   12/20/2010   JP Morgan
Chase Bank		   (Pay)     3.43 %     15.14 %   Republic of
Argentina		     N/A           660,436    
  5,000,000     USD   1/25/2011   Deutsche
Bank AG		   Receive     4.63 %     16.76 %   Government
of Ukraine		     5,000,000     USD     (711,146 )  
  7,000,000     USD   2/7/2011   Deutsche
Bank AG		   Receive     4.95 %     16.71 %   Government
of Ukraine		     7,000,000     USD     (994,099 )  
  3,000,000     USD   2/25/2011   Deutsche
Bank AG		   Receive     3.50 %     50.94 %   Deutsche
Bank Loan to
Ukrtelekom		     3,000,000     USD     (1,362,557 )  
  8,000,000     USD   3/20/2011   Citigroup   (Pay)     3.70 %     5.87 %   Republic of
Iraq		     N/A           116,032    
  8,000,000     USD   3/20/2011   UBS AG   (Pay)     3.55 %     7.89 %   Republic of
Iraq		     N/A           359,722    

 

See accompanying notes to the financial statements.


23


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  5,000,000     USD   4/26/2011   Deutsche   Receive     4.66 %     16.5 %   Government     5,000,000     USD   $ (739,477 )  
            Bank AG                 of Ukraine                  
  10,000,000     USD   6/20/2011   Deutsche
Bank AG		   (Pay)     1.89 %     7.75 %   Islamic
Republic of
Pakistan		     N/A           908,983    
  34,000,000     USD   6/20/2011   Deutsche
Bank AG		   (Pay)     1.35 %     N/A     Reference
security
within CDX
Index		     N/A           1,284,350    
  11,000,000     USD   6/20/2011   JP Morgan
Chase Bank		   (Pay)     1.35 %     N/A     Reference
security
within CDX
Index		     N/A           415,525    
  6,000,000     USD   6/20/2011   JP Morgan
Chase Bank		   Receive     3.75 %     9.45 %   Republic of
Georgia		     6,000,000     USD     (513,657 )  
  9,000,000     USD   7/17/2011   UBS AG   Receive     5.05 %     17.16 %   Government
of Ukraine		     9,000,000     USD     (1,566,618 )  
  5,000,000     USD   7/25/2011   Deutsche
Bank AG		   Receive     4.68 %     16.4 %   Government
of Ukraine		     5,000,000     USD     (887,391 )  
  7,000,000     USD   8/5/2011   Deutsche
Bank AG		   Receive     5.00 %     16.4 %   Government
of Ukraine		     7,000,000     USD     (1,229,437 )  
  20,000,000     USD   8/20/2011   Deutsche
Bank AG		   (Pay)     0.57 %     1.35 %   United
Mexican
States		     N/A           298,239    
  620,000,000     MXN   8/20/2011   Deutsche
Bank AG		   Receive     0.40 %     0.83 %   United
Mexican
States		     620,000,000     MXN     (357,718 )  
  3,000,000     USD   8/25/2011   Deutsche
Bank AG		   Receive     3.60 %     49.06 %   Deutsche
Bank Loan to
Ukrtelekom		     3,000,000     USD     (1,556,053 )  
  45,000,000     USD   10/20/2011   Goldman Sachs   (Pay)     12.35 %     16.37 %   Republic of
Argentina		     N/A           860,102    
  7,000,000     USD   10/20/2011   JP Morgan
Chase Bank		   (Pay)     2.75 %     16.37 %   Republic of
Argentina		     N/A           1,617,217    

 

See accompanying notes to the financial statements.


24


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  5,000,000     USD   10/25/2011   Deutsche   Receive     4.70 %     16.33 %   Government     5,000,000     USD   $ (915,012 )  
            Bank AG                 of Ukraine                  
  19,000,000     USD   10/30/2011   Deutsche
Bank AG		   Receive     4.00 %     48.57 %   Naftofaz
Ukraine		     19,000,000     USD     (10,026,482 )  
  8,000,000     USD   11/20/2011   JP Morgan
Chase Bank		   (Pay)     2.16 %     16.3 %   Republic of
Argentina		     N/A           2,013,357    
  7,083,420     USD   12/20/2011   Deutsche
Bank AG		   Receive     1.60 %     1.92 %   Stemcor
UK Ltd.		     7,083,420     USD     74,047    
  5,000,000     USD   12/20/2011   JP Morgan
Chase Bank		   (Pay)     0.66 %     1.6 %   Petroleos
Mexicanos		     N/A           99,611    
  65,000,000     USD   12/20/2011   JP Morgan
Chase Bank		   (Pay)     1.40 %     N/A     Reference
security
within CDX
Index		     N/A           3,112,056    
  4,100,000,000     KZT   1/20/2012   Deutsche
Bank AG		   Receive     0.32 %     2.34 %   Republic of
Kazakhstan		     4,100,000,000     KZT     (1,128,432 )  
  8,500,000     EUR   1/20/2012   Duetsche
Bank AG		   (Pay)     0.42 %     3.11 %   Republic of
Kazakhstan		     N/A           728,786    
  3,000,000     USD   2/25/2012   Deutsche
Bank AG		   Receive     3.68 %     53.96 %   Deutsche
Bank Loan to
Ukrtelekom		     3,000,000     USD     (1,684,822 )  
  19,000,000     USD   5/5/2012   Deutsche
Bank AG		   Receive     4.00 %     49.44 %   Naftofaz
Ukraine		     19,000,000     USD     (10,719,642 )  
  14,000,000     EUR   5/30/2012   Deutsche
Bank AG		   Receive     8.00 %     8.12 %   Republic of
Albania		     14,000,000     USD     206,307    
  50,000,000     USD   6/20/2012   Morgan Stanley   (Pay)     1.25 %     N/A     Reference
security
within CDX
Index		     N/A           3,143,472    
  5,000,000     USD   7/30/2012   JP Morgan
Chase Bank		   Receive     3.05 %     0.58 %   Republic of
Chile		     5,000,000     USD     365,845    
  5,000,000     USD   8/20/2012   JP Morgan
Chase Bank		   Receive     3.50 %     7.5 %   Republic of
Jamaica		     5,000,000     USD     (503,528 )  

 

See accompanying notes to the financial statements.


25


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  3,000,000     USD   8/25/2012   Deutsche   Receive     3.75 %     54.42 %   Deutsche     3,000,000     USD   $ (1,777,420 )  
            Bank AG                 Bank Loan to              
   
                            Ukrtelekom                  
  2,000,000     USD   9/20/2012   Goldman Sachs   (Pay)     9.20 %     16.02 %   Republic of
Argentina		     N/A           229,678    
  15,000,000     USD   9/20/2012   JP Morgan
Chase Bank		   (Pay)     1.15 %     1.16 %   Republic of
Peru		     N/A           (76,224 )  
  10,000,000     USD   9/20/2012   JP Morgan
Chase Bank		   (Pay)     1.25 %     3.58 %   Gazprom
OAO		     N/A           602,779    
  85,000,000     PEN   9/20/2012   JP Morgan
Chase Bank		   Receive     0.92 %     0.87 %   Republic of
Peru		     85,000,000     PEN     162,359    
  10,000,000     USD   10/4/2012   JP Morgan
Chase Bank		   Receive     2.95 %     0.6 %   Republic of
Chile		     10,000,000     USD     831,352    
  15,000,000     USD   10/20/2012   JP Morgan
Chase Bank		   Receive     0.80 %     1.06 %   Republic of
Brazil		     15,000,000     USD     (72,582 )  
  20,000,000     USD   10/20/2012   JP Morgan
Chase Bank		   Receive     0.80 %     1.06 %   Republic of
Brazil		     20,000,000     USD     (96,775 )  
  4,000,000     USD   10/20/2012   UBS AG   (Pay)     3.90 %     13.56 %   Petroleos de
Venezuela		     N/A           807,205    
  4,000,000     USD   10/20/2012   UBS AG   (Pay)     4.13 %     13.56 %   Petroleos de
Venezuela		     N/A           783,211    
  5,000,000     USD   11/5/2012   Deutsche
Bank AG		   Receive     6.50 %     6.98 %   Republic of
Jamaica		     5,000,000     USD     42,875    
  50,000,000     USD   12/20/2012   JP Morgan
Chase Bank		   (Pay)     1.75 %     N/A     Reference
security
within CDX
Index		     N/A           2,809,861    
  42,000,000     USD   12/20/2012   Morgan Stanley   (Pay)     1.20 %     0.65 %   Reference
security
within CDX
Index		     N/A           (844,424 )  
  204,179,760     USD   12/20/2012   Morgan Stanley   Receive     0.71 %     0.3 %   Reference
security
within CDX
Index		     204,179,760     USD     3,024,773    

 

See accompanying notes to the financial statements.


26


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  20,000,000     USD   3/20/2013   Deutsche   (Pay)     1.48 %     1.58 %   United     N/A         $ (65,743 )  
            Bank AG                 Mexican              
   
                            States                  
  22,000,000     USD   6/20/2013   Deutsche
Bank AG		   (Pay)     5.79 %     15.99 %   Republic of
Argentina		     N/A           5,714,573    
  14,000,000     USD   6/20/2013   JP Morgan
Chase Bank		   Receive     3.72 %     3.21 %   Russia
AG Bank		     14,000,000     USD     347,397    
  200,759,555     RUB   6/21/2013   Deutsche
Bank AG		   Receive     2.35 %     11.87 %   VTB
Leasing		     200,759,555     RUB     (329,905 )  
  23,694,322     USD   6/24/2013   JP Morgan
Chase Bank		   Receive     1.37 %     6.81 %   VTB
Leasing		     23,694,322     USD     (2,122,572 )  
  50,000,000     USD   8/20/2013   JP Morgan
Chase Bank		   (Pay)     1.20 %     1.31 %   Republic of
Peru		     N/A           179,859    
  277,250,000     PEN   8/20/2013   JP Morgan
Chase Bank		   Receive     0.96 %     0.99 %   Republic of
Peru		     277,250,000     PEN     (65,911 )  
  13,050,000,000     JPY   10/20/2013   Deutsche
Bank AG		   (Pay)     3.20 %     1.24 %   Republic of
Brazil		     N/A           (12,341,511 )  
  7,830,000,000     JPY   10/20/2013   Deutsche
Bank AG		   (Pay)     3.95 %     1.24 %   Republic of
Brazil		     N/A           (9,981,624 )  
  130,000,000     USD   10/20/2013   Deutsche
Bank AG		   Receive     3.30 %     1.23 %   Republic of
Brazil		     130,000,000     USD     12,139,862    
  80,000,000     USD   10/20/2013   Deutsche
Bank AG		   Receive     4.05 %     1.23 %   Republic of
Brazil		     80,000,000     USD     10,040,583    
  10,000,000     USD   12/24/2013   JP Morgan
Chase Bank		   Receive     3.80 %     2.04 %   Republic of
Turkey		     10,000,000     USD     774,359    
  10,000,000     USD   3/20/2014   Deutsche
Bank AG		   (Pay)     1.85 %     0.71 %   Republic of
Italy		     N/A           (524,604 )  
  14,000,000     USD   3/20/2014   Deutsche
Bank AG		   (Pay)     1.45 %     0.54 %   United
Kingdom
Government		     N/A           (591,941 )  
  14,000,000     USD   3/20/2014   Deutsche
Bank AG		   (Pay)     2.80 %     1.09 %   Hellenic
Republic of
Greece		     N/A           (1,087,183 )  

 

See accompanying notes to the financial statements.


27


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  28,000,000     USD   3/20/2014   Deutsche   (Pay)     1.70 %     0.71 %   Republic of     N/A         $ (1,280,342 )  
            Bank AG                 Italy                  
  39,000,000     USD   3/20/2014   Deutsche
Bank AG		   (Pay)     1.49 %     0.68 %   Republic of
Austria		     N/A           (1,463,231 )  
  39,000,000     USD   3/20/2014   Deutsche
Bank AG		   (Pay)     2.39 %     1.09 %   Hellenic
Republic of
Greece		     N/A           (2,320,404 )  
  39,000,000     USD   3/20/2014   Deutsche
Bank AG		   (Pay)     1.28 %     0.54 %   United
Kingdom
Government		     N/A           (1,349,477 )  
  14,000,000     USD   3/20/2014   Deutsche
Bank AG		   (Pay)     1.68 %     0.71 %   Republic of
Italy		     N/A           (627,601 )  
  10,000,000     USD   5/14/2014   Deutsche
Bank AG		   Receive     6.64 %     2.09 %   Republic of
Turkey		     10,000,000     USD     2,156,646    
  5,000,000     USD   5/19/2014   Deutsche
Bank AG		   Receive     6.42 %     2.09 %   Republic of
Turkey		     5,000,000     USD     1,025,200    
  10,000,000     USD   6/16/2014   Deutsche
Bank AG		   Receive     6.22 %     2.1 %   Republic of
Turkey		     10,000,000     USD     1,930,657    
  2,000,000     USD   8/24/2014   Deutsche
Bank AG		   (Pay)     4.25 %     3 %   Lebanese
Republic		     N/A           (107,982 )  
  15,000,000     USD   9/20/2014   Deutsche
Bank AG		   (Pay)     4.03 %     2.95 %   Sberbank     N/A           (782,170 )  
  15,000,000     USD   9/20/2014   Deutsche
Bank AG		   Receive     3.77 %     2.72 %   Russian
Federation		     15,000,000     USD     787,109    
  575,500,000     EUR   3/20/2015   Deutsche
Bank AG		   (Pay)     3.72 %     11.48 %   Venezuela
Eurobond		     N/A           220,940,892    
  765,000,000     USD   3/20/2015   Deutsche
Bank AG		   Receive     3.80 %     11.59 %   Bolivarian
Republic of
Venezuela		     765,000,000     USD     (205,516,452 )  
  300,000,000     EUR   4/20/2015   Deutsche
Bank AG		   (Pay)     4.32 %     11.46 %   Bolivarian
Republic of
Venezuela		     N/A           106,701,998    
  412,500,000     USD   4/20/2015   Deutsche
Bank AG		   Receive     4.40 %     11.57 %   Bolivarian
Republic of
Venezuela		     412,500,000     USD     (102,710,697 )  

 

See accompanying notes to the financial statements.


28


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  56,950,000,000     COP   11/20/2015   Citigroup   Receive     1.81 %     1.14 %   Republic of     56,950,000,000     COP   $ 1,013,106    
                            Colombia                  
  15,000,000     USD   2/20/2016   Citigroup   (Pay)     2.16 %     1.77 %   Republic of
Colombia		     N/A           (337,801 )  
  56,700,000,000     COP   2/20/2016   Citigroup   Receive     1.46 %     1.15 %   Republic of
Colombia		     56,700,000,000     COP     431,002    
  25,000,000     USD   4/20/2016   Citigroup   (Pay)     1.90 %     1.78 %   Republic of
Colombia		     N/A           (347,243 )  
  114,800,000,000     COP   4/20/2016   Citigroup   Receive     1.33 %     1.15 %   Republic of
Colombia		     114,800,000,000     COP     763,276    
  22,000,000     EUR   6/17/2016   Deutsche
Bank AG		   Receive     5.60 %     19.04 %   Republic of
Angola		     22,000,000     EUR     (6,311,780 )  
  20,000,000     USD   8/20/2016   Citigroup   (Pay)     2.15 %     1.8 %   Republic of
Colombia		     N/A           (438,158 )  
  97,680,000,000     COP   8/20/2016   Citigroup   Receive     1.51 %     1.16 %   Republic of
Colombia		     97,680,000,000     COP     849,156    
  20,000,000     USD   8/20/2016   Deutsche
Bank AG		   (Pay)     0.87 %     1.8 %   United
Mexican
States		     N/A           1,106,717    
  620,000,000     MXN   8/20/2016   Deutsche
Bank AG		   Receive     0.61 %     1.17 %   United
Mexican
States		     620,000,000     MXN     (1,331,873 )  
  22,000,000     USD   8/20/2016   JP Morgan
Chase Bank		   Receive     1.99 %     1.48 %   Republic of
Brazil		     22,000,000     USD     692,002    
  87,500,000     USD   2/20/2017   Deutsche
Bank AG		   Receive     2.43 %     11.22 %   Bolivarian
Republic of
Venezuela		     87,500,000     USD     (32,750,018 )  
  2,500,000     USD   5/20/2017   Deutsche
Bank AG		   (Pay)     1.05 %     1.61 %   Republic of
Peru		     N/A           83,304    
  32,000,000     PEN   5/20/2017   Deutsche
Bank AG		   Receive     0.79 %     1.53 %   Republic of
Peru		     32,000,000     PEN     (443,041 )  
  4,500,000     USD   7/20/2017   JP Morgan
Chase Bank		   Receive     3.30 %     7.45 %   Republic of
Jamaica		     4,500,000     USD     (924,079 )  

 

See accompanying notes to the financial statements.


29


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  35,000,000     USD   7/20/2017   UBS AG   Receive     2.26 %     2.25 %   Republic of     35,000,000     USD   $ 125,050    
                            Turkey                  
  8,000,000     USD   8/20/2017   JP Morgan
Chase Bank		   Receive     2.20 %     1.83 %   Republic of
Colombia		     8,000,000     USD     200,794    
  17,000,000     USD   9/20/2017   JP Morgan
Chase Bank		   Receive     1.74 %     1.92 %   Republic of
Philippines		     17,000,000     USD     (144,005 )  
  30,000,000     USD   9/20/2017   JP Morgan
Chase Bank		   Receive     1.77 %     1.92 %   Republic of
Philippines		     30,000,000     USD     (202,619 )  
  21,000,000     USD   10/20/2017   Deutsche
Bank AG		   Receive     1.78 %     4.94 %   Vneshtorg
Bank Bond &
Loan		     21,000,000     USD     (3,678,782 )  
  4,000,000     USD   11/20/2017   JP Morgan
Chase Bank		   Receive     4.85 %     11.07 %   Bolivarian
Republic of
Venezuela		     4,000,000     USD     (1,052,931 )  
  4,000,000     USD   11/20/2017   JP Morgan
Chase Bank		   Receive     4.90 %     11.07 %   Bolivarian
Republic of
Venezuela		     4,000,000     USD     (1,043,444 )  
  25,000,000     USD   1/20/2018   Deutsche
Bank AG		   Receive     1.50 %     1.55 %   Republic of
Brazil		     25,000,000     USD     (46,755 )  
  45,000,000     USD   10/20/2018   Goldman Sachs   Receive     12.20 %     13.8 %   Republic of
Argentina		     45,000,000     USD     (970,068 )  
  10,000,000     USD   12/20/2018   Deutsche
Bank AG		   Receive     0.44 %     0.60 %   United
Kingdom
Government		     10,000,000     USD     (117,375 )  
  10,000,000     USD   3/20/2019   Deutsche
Bank AG		   Receive     1.62 %     0.77 %   Republic of
Italy		     10,000,000     USD     707,294    
  10,000,000     USD   3/20/2019   Deutsche
Bank AG		   Receive     1.70 %     0.77 %   Republic of
Italy		     10,000,000     USD     772,416    
  10,000,000     USD   3/20/2019   Deutsche
Bank AG		   Receive     2.61 %     1.17 %   Hellenic
Republic of
Greece		     10,000,000     USD     1,162,230    
  10,000,000     USD   3/20/2019   Deutsche
Bank AG		   Receive     1.35 %     0.60 %   United
Kingdom
Government		     10,000,000     USD     629,852    

 

See accompanying notes to the financial statements.


30


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Credit Default Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)^		   Annual
Premium		   Implied
Credit
Spread (1)		   Deliverable
on Default		   Maximum
Potential
Amount of
Future
Payments
by the Fund
Under the
Contract (2)		   Market
Value		  
  20,000,000     USD   3/20/2019   Deutsche   Receive     1.66 %     0.77 %   Republic of     20,000,000     USD   $ 1,479,711    
            Bank AG                 Italy                  
  30,000,000     USD   3/20/2019   Deutsche
Bank AG		   Receive     2.25 %     1.17 %   Hellenic
Republic of
Greece		     30,000,000     USD     2,632,339    
  30,000,000     USD   3/20/2019   Deutsche
Bank AG		   Receive     1.25 %     0.60 %   United
Kingdom
Government		     30,000,000     USD     1,642,340    
  30,000,000     USD   3/20/2019   Deutsche
Bank AG		   Receive     1.46 %     0.76 %   Republic of
Austria		     30,000,000     USD     1,754,611    
  20,000,000     USD   8/15/2031   Goldman Sachs   (Pay)     1.84 %     2.06 %   United
Mexican
States		     N/A           518,219    
    $ (26,671,759 )  
    Premiums to (Pay) Receive   $ (7,822,662 )  

 

^  Receive - Fund receives premium and sells credit protection.
(Pay) - Fund pays premium and buys credit protection.

(1)  Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on the reference security, as of August 31, 2009, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider (i.e. higher) credit spreads represent a deterioration of the referenced entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(2)  The maximum potential amount the Fund could be required to make as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

See accompanying notes to the financial statements.


31


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)#		   Fixed
Rate		   Variable Rate   Market
Value		  
  20,000,000     USD   1/4/2010   JP Morgan Chase Bank   Receive     5.62 %   6 month LIBOR   $ 2,893,522    
  43,000,000     PEN   2/19/2010   JP Morgan Chase Bank   (Pay)     3.15 %   6 month LIBOR     103,489    
  90,000,000,000     KRW   5/29/2010   Bank of America   (Pay)     4.79 %   3 month KRW LIBOR     (1,190,875 )  
  51,000,000     BRL   1/2/2013   JP Morgan Chase Bank   Receive     13.80 %   Floating Rate CDI     734,585    
  46,800,000     PEN   4/21/2014   JP Morgan Chase Bank   Receive     5.03 %   6 month LIBOR     (1,680,866 )  
  75,000,000     USD   12/17/2018   Bank of America   Receive     2.75 %   3 month LIBOR     (4,809,453 )  
    $ (3,949,598 )  
    Premiums to (Pay) Receive   $ (749,683 )  

 

#  Receive - Fund receives fixed rate and pays variable rate.
(Pay) - Fund pays fixed rate and receives variable rate.

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Fund Pays   Fund Receives   Market
Value		  
  100,000,000     USD   10/13/2009   JP Morgan   3 month   EMBI + Total Return   $ 10,696,463    
                Chase Bank   LIBOR + 0.75%          
  50,000,000     USD   7/2/2010   JP Morgan
Chase Bank		   3 month
LIBOR + 1.00%		   EMBI + Total Return
 		    1,934,727
 		   
  100,000,000     USD   7/29/2010   JP Morgan
Chase Bank		   3 month
LIBOR + 1.00%		   EMBI + Total Return
 		    1,870,574
 		   
  38,167,808     USD   12/19/2011   JP Morgan
Chase Bank		   3 month
LIBOR + 0.35%		   Return on Prestamos
Garatizados		     (11,287,968)
 		   
  23,307,880     USD   12/19/2011   JP Morgan
Chase Bank		   3 month
LIBOR + 0.35%		   Return on Prestamos
Garatizados		     (5,024,614)
 		   
  37,782,943     USD   12/19/2011   JP Morgan
Chase Bank		   CER Index + 1.24%   3 month LIBOR
 		    5,242,301
 		   
  23,307,898     USD   12/19/2011   JP Morgan
Chase Bank		   CER Index + 3.59%   3 month LIBOR
 		    2,477,758
 		   
  300,000,000     RUB   3/26/2017   Morgan Stanley   3 month
LIBOR + 0.25%		   Return on Sukhoi
 		    (1,974,223)
 		   
                            $ 3,935,018    
                        Premiums to (Pay) Receive   $ (650,694 )  

 

See accompanying notes to the financial statements.


32


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, for the swap contracts held, the Fund had sufficient cash and/or securities to cover any commitments or collateral 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 Deposito Interbancario

CER - Coeficiente de Estabilizacion de Referencia

DEM LIBOR - London Interbank Offered Rate denominated in Deutsche Marks

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

JPY LIBOR - London Interbank Offered Rate denominated in Japanese Yen

KRW LIBOR - London Interbank Offered Rate denominated in South Korean Won

LIBOR - London Interbank Offered Rate

PDI - Past Due Interest

PIK - Payment In Kind

VRRB - Variable Rate Reduction Bond

XL - Insured as to the payment of principal and interest by XL Capital Assurance.

The rates shown on variable rate notes are the current interest rates at August 31, 2009, which are subject to change based on the terms of the security.

*  Non-income producing security.

(a)  Security is in default.

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

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

See accompanying notes to the financial statements.


33


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

(d)  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, represents 1.71% of the net assets of the Fund as of August 31, 2009. Judgments were awarded in the Fund's favor on September 24, 2007; however, the Fund's ability to collect on those judgments remains uncertain and transfer of those judgements requires court approval. Costs associated with this action are being borne by the Fund. (Note 2).

(e)  All or a portion of this security has been segregated to cover collateral requirements on reverse repurchase agreements (Note 2).

(f)  All or a portion of this security has been segregated to cover collateral requirements on open swap contracts (Note 2).

(g)  Non-performing. Borrower not currently paying interest.

(h)  Past due maturity payment.

(i)  Underlying investment represents interests in defaulted securities.

(j)  Although the Fund acquired the warrants between 2000 and 2002 (in connection with the Fund's purchase of Venezuelan bonds), the warrants (and related payments on the warrants) have not been received in custody. The Fund's trading counterparties have acknowledged their delivery obligations. However, because there can be no assurance that the Fund will receive the warrants (and related payments), the Fund values the warrants (and related payments) at a discount from their market value.

(k)  In July 2008, the Fund entered into litigation against GNPA Limited ("GNPA") (an entity wholly owned by the government of Ghana) seeking payment on an unconditional promissory note issued by GNPA. The defaulted promissory note, which continues to be valued according to the Fund's valuation policy, represented less than 0.1% of the net assets of the Fund as of August 31, 2009. Costs associated with this action are borne by the Fund.

Currency Abbreviations:

ARS - Argentine Peso
BRL - Brazilian Dollar
CHF - Swiss Franc
COP - Colombian Peso
DEM - Deutsche 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
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, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $2,477,833,530) (Note 2)   $ 2,149,220,798    
Investments in affiliated issuers, at value (cost $115,658,633) (Notes 2 and 8)     99,779,402    
Foreign currency, at value (cost $1,817,841) (Note 2)     1,371,373    
Receivable for investments sold     53,557    
Dividends and interest receivable     33,208,215    
Unrealized appreciation on open forward currency contracts (Note 2)     2,200,395    
Interest receivable for open swap contracts     1,109,261    
Receivable for open swap contracts (Note 2)     436,200,954    
Total assets     2,723,143,955    
Liabilities:  
Payable for investments purchased     5,667,763    
Payable for Fund shares repurchased     13,275,147    
Payable to affiliate for (Note 3):  
Management fee     591,253    
Shareholder service fee     195,818    
Trustees and Chief Compliance Officer of GMO Trust fees     4,179    
Unrealized depreciation on open forward currency contracts (Note 2)     1,235,343    
Payable for open swap contracts (Note 2)     462,887,293    
Payable for reverse repurchase agreements (Note 2)     225,228,750    
Miscellaneous payable     17,475,582    
Accrued expenses     620,525    
Total liabilities     727,181,653    
Net assets   $ 1,995,962,302    

 

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, 2009 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 2,501,720,107    
Accumulated undistributed net investment income     4,813,378    
Accumulated net realized loss     (131,236,300 )  
Net unrealized depreciation     (379,334,883 )  
    $ 1,995,962,302    
Net assets attributable to:  
Class III shares   $ 604,963,359    
Class IV shares   $ 1,390,998,943    
Shares outstanding:  
Class III     78,545,014    
Class IV     180,675,638    
Net asset value per share:  
Class III   $ 7.70    
Class IV   $ 7.70    

 

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, 2009 (Unaudited)

Investment Income:  
Interest   $ 68,237,826    
Dividends from affiliated issuers (Note 8)     531,431    
Dividends     513,276    
Total investment income     69,282,533    
Expenses:  
Management fee (Note 3)     3,504,956    
Shareholder service fee – Class III (Note 3)     454,420    
Shareholder service fee – Class IV (Note 3)     698,469    
Custodian, fund accounting agent and transfer agent fees     449,052    
Interest expense (Note 2)     337,236    
Legal fees     96,324    
Audit and tax fees     64,768    
Trustees fees and related expenses (Note 3)     20,555    
Registration fees     8,924    
Miscellaneous     14,997    
Total expenses     5,649,701    
Expense reductions (Note 2)     (21 )  
Net expenses     5,649,680    
Net investment income (loss)     63,632,853    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (22,529,153 )  
Investments in affiliated issuers     4,398    
Closed futures contracts     9,103    
Closed swap contracts     18,820,878    
Foreign currency, forward contracts and foreign currency related transactions     (22,054,810 )  
Net realized gain (loss)     (25,749,584 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     475,201,728    
Investments in affiliated issuers     13,210,375    
Open futures contracts     29,089    
Open swap contracts     74,599,525    
Foreign currency, forward contracts and foreign currency related transactions     (30,042,730 )  
Net unrealized gain (loss)     532,997,987    
Net realized and unrealized gain (loss)     507,248,403    
Net increase (decrease) in net assets resulting from operations   $ 570,881,256    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 63,632,853     $ 153,709,007    
Net realized gain (loss)     (25,749,584 )     (26,166,295 )  
Change in net unrealized appreciation (depreciation)     532,997,987       (1,026,863,672 )  
Net increase (decrease) in net assets from operations     570,881,256       (899,320,960 )  
Distributions to shareholders from:  
Net investment income  
Class III     (10,931,713 )     (44,778,489 )  
Class IV     (23,292,115 )     (170,454,066 )  
Total distributions from net investment income     (34,223,828 )     (215,232,555 )  
Net realized gains  
Class III     —       (14,329,630 )  
Class IV     —       (44,349,438 )  
Total distributions from net realized gains     —       (58,679,068 )  
      (34,223,828 )     (273,911,623 )  
Net share transactions (Note 7):  
Class III     (95,189,154 )     74,710,846    
Class IV     (280,189,541 )     75,473,817    
Increase (decrease) in net assets resulting from net share
transactions		     (375,378,695 )     150,184,663    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     2,613,424       95,851    
Class IV     5,618,689       301,304    
Increase in net assets resulting from purchase premiums
and redemption fees		     8,232,113       397,155    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (367,146,582 )     150,581,818    
Total increase (decrease) in net assets     169,510,846       (1,022,650,765 )  
Net assets:  
Beginning of period     1,826,451,456       2,849,102,221    
End of period (including accumulated undistributed net investment
income of $4,813,378 and distributions in excess of
net investment income of $24,595,647, respectively)		   $ 1,995,962,302     $ 1,826,451,456    

 

See accompanying notes to the financial statements.


38



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

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

    Six Months
Ended
August 31, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 5.85     $ 10.06     $ 10.73     $ 11.30     $ 11.09     $ 10.51    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.21       0.54       0.68       0.86       0.88       0.89    
Net realized and unrealized
gain (loss)		     1.76       (3.77 )     (0.13 )     0.30       1.14       1.16    
Total from investment
operations		     1.97       (3.23 )     0.55       1.16       2.02       2.05    
Less distributions to shareholders:  
From net investment income     (0.12 )     (0.77 )     (0.76 )     (0.94 )     (1.26 )     (1.18 )  
From net realized gains     —       (0.21 )     (0.46 )     (0.79 )     (0.55 )     (0.29 )  
Total distributions     (0.12 )     (0.98 )     (1.22 )     (1.73 )     (1.81 )     (1.47 )  
Net asset value, end of period   $ 7.70     $ 5.85     $ 10.06     $ 10.73     $ 11.30     $ 11.09    
Total Return(a)      33.90 %**      (32.75 )%     5.07 %     10.98 %     19.50 %     20.58 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 604,963     $ 535,194     $ 734,921     $ 876,598     $ 1,020,976     $ 1,088,609    
Net operating expenses to
average daily net assets(b) 		     0.57 %(c)*      0.59 %(c)      0.57 %(c)      0.57 %     0.57 %     0.57 %  
Interest expense to average
daily net assets(d) 		     0.03 %*      0.23 %     0.74 %     0.48 %     0.22 %     0.08 %  
Total net expenses to average
daily net assets		     0.60 %(c)*      0.82 %(c)      1.31 %(c)      1.05 %     0.79 %     0.65 %  
Net investment income to
average daily net assets		     6.33 %*      6.36 %     6.36 %     7.91 %     7.75 %     8.22 %  
Portfolio turnover rate     13 %**      38 %     53 %     83 %     144 %     121 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts:† 		   $ 0.03     $ 0.00 (e)    $ 0.01     $ 0.01     $ 0.01     $ 0.01    

 

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


39


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

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

    Six Months
Ended
August 31, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 5.85     $ 10.06     $ 10.73     $ 11.30     $ 11.09     $ 10.51    
Income (loss) from investment
operations:		  
Net investment income
(loss)† 		     0.21       0.53       0.69       0.87       0.88       0.90    
Net realized and unrealized
gain (loss)		     1.76       (3.76 )     (0.13 )     0.29       1.15       1.16    
Total from investment
operations		     1.97       (3.23 )     0.56       1.16       2.03       2.06    
Less distributions to
shareholders:		  
From net investment income     (0.12 )     (0.77 )     (0.77 )     (0.94 )     (1.27 )     (1.19 )  
From net realized gains     —       (0.21 )     (0.46 )     (0.79 )     (0.55 )     (0.29 )  
Total distributions     (0.12 )     (0.98 )     (1.23 )     (1.73 )     (1.82 )     (1.48 )  
Net asset value, end
of period		   $ 7.70     $ 5.85     $ 10.06     $ 10.73     $ 11.30     $ 11.09    
Total Return(a)      33.89 %**      (32.66 )%     5.13 %     11.06 %     19.57 %     20.64 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 1,390,999     $ 1,291,258     $ 2,114,181     $ 1,996,230     $ 1,799,792     $ 1,550,402    
Net operating expenses to
average daily net assets(b) 		     0.52 %(c)*      0.54 %(c)      0.53 %(c)      0.52 %     0.52 %     0.52 %  
Interest expense to average
daily net assets(d) 		     0.03 %*      0.23 %     0.74 %     0.48 %     0.22 %     0.08 %  
Total net expenses to
average daily net assets		     0.55 %(c)*      0.77 %(c)      1.27 %(c)      1.00 %     0.74 %     0.60 %  
Net investment income to
average daily net assets		     6.36 %*      6.46 %     6.45 %     7.97 %     7.75 %     8.29 %  
Portfolio turnover rate     13 %**      38 %     53 %     83 %     144 %     121 %  
Purchase premiums and
redemption fees
consisted of the following
per share amounts:† 		   $ 0.03     $ 0.00 (e)    $ 0.00 (e)    $ 0.01     $ 0.00 (e)    $ 0.01    

 

(a)  Calculation excludes purchase premiums and redemption fees which are borne by the 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)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Emerging Country Debt Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 J.P. Morgan Emerging Markets Bond Index Global (EMBIG). 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. Under normal circumstances, the Fund invests (including through investment in other GMO Funds) at least 80% of its assets in debt investments tied economically to emerging countries. Debt investments include (i) obligations of an issuer to make payments of principal and/or interest on future dates and (ii) synthetic debt instruments created by the Manager by using a futures contract, swap contract, currency forward and/or option. The Fund typically gains its investment exposure by purchasing debt securities of sovereign issuers of emerging countries or by using derivatives, typically credit default swaps. The Fund also invests in asset-backed securities (including through GMO Short-Duration Collateral Fund ("SDCF") and GMO World Opportunity Overlay Fund ("Overlay Fund")). During the six-month period ended August 31, 2009, the Fund invested a substantial portion of its assets in below investment grade securities (also known as "junk bonds"). Generally, at least 75% of the Fund's assets are denominated in, or hedged into, U.S. dollars. In pursuing its investment objective, the Fund typically uses exchange-traded and over-the-counter ("OTC") derivatives, including options, swap contracts (in addition to credit default swaps), currency forwards, and futures. The Fund also invests in unaffiliated money market funds and in GMO U.S. Treasury Fund.

Throughout the period ended August 31, 2009, the Fund had two classes of shares outstanding: Class III and Class IV. Each class of shares bears a different shareholder service fee.

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). As of August 31, 2009, shares of SDCF, GMO Special Purpose Holding Fund ("SPHF") and Overlay Fund were not publicly available for direct purchase.

The Fund will, if deemed prudent by the Manager, take temporary defensive measures (until the Manager has determined that normal conditions have returned or that it is otherwise prudent to resume investing in


41


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

accordance with the Fund's normal investment strategies) and may not achieve its investment objectives during those periods. Recent changes in the credit markets have reduced the liquidity of all types of fixed income securities, including asset-backed securities.

As of August 31, 2009, the Fund expected to effect redemptions of its shares in-kind above de minimis levels. The Fund has established de minimis amounts below which redemptions would be honored for cash.

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.

As of August 31, 2009, a significant portion of the Fund's dividends received from other GMO funds is expected to be a return of capital for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" reported in the Statement of Operations has been reduced by the portion estimated to be a return of capital as of August 31, 2009. The estimated return of capital is $13,317,599. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the estimated return of capital. The dividends from affiliated issuers are subject to change and will not be finalized until February 28, 2010, the Fund's upcoming fiscal year-end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended


42


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 47.14% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund valued certain debt securities using indicative bids received from primary pricing sources. In certain cases, bids received from primary pricing sources or prices calculated by using industry models are adjusted by a specified discount for liquidity or other considerations. In addition, the Fund valued certain sovereign debt securities using comparable securities issued by the sovereign adjusted by a specified spread. The Fund also utilizes third party valuation services (which use industry standard models and inputs from pricing vendors) to value credit default swaps. The Fund valued certain debt securities using a specified spread above the LIBOR Rate. The Fund considered certain defaulted securities to be worthless.

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


43


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Debt Obligations  
Asset-Backed Securities   $ —     $ 22,648,425     $ 162,745,344     $ 185,393,769    
Corporate Debt     —       —       183,755,227       183,755,227    
Foreign Government Agency     —       —       300,585,979       300,585,979    
Foreign Government Obligations     —       —       986,101,210       986,101,210    
Judgments     —       —       34,091,562       34,091,562    
U.S. Government     57,281,250       178,934,388       —       236,215,638    
TOTAL DEBT OBLIGATIONS     57,281,250       201,582,813       1,667,279,322       1,926,143,385    
Loan Assignments     —       —       37,887,097       37,887,097    
Loan Participations     —       —       124,996,777       124,996,777    
Promissory Notes     —       —       3,406,116       3,406,116    
Options Purchased     —       2,727,864       —       2,727,864    
Mutual Funds     6,610,711       93,168,691       —       99,779,402    
Rights and Warrants     —       —       10,854,750       10,854,750    
Short-Term Investments     —       43,204,809       —       43,204,809    
Total Investments     63,891,961       340,684,177       1,844,424,062       2,249,000,200    
Derivatives  
Forward Currency Contracts     —       2,200,395       —       2,200,395    
Swap Agreements     —       15,339,838       420,861,116       436,200,954    
Total   $ 63,891,961     $ 358,224,410     $ 2,265,285,178     $ 2,687,401,549    

 

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Forward Currency Contracts   $ —     $ (1,235,343 )   $ —     $ (1,235,343 )  
Swap Agreements     —       (9,655,417 )     (453,231,876 )     (462,887,293 )  
Total   $ —     $ (10,890,760 )   $ (453,231,876 )   $ (464,122,636 )  

 


44


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (both direct and indirect) in securities and other financial instruments using Level 3 inputs were 95.90% and (1.63)% of total net assets, respectively.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out of
Level 3		   Balances
as of
August 31,
2009		  
Debt Obligations  
Asset-Backed
Securities		   $ 209,397,142     $ (62,437,142 )   $ (61,080 )   $ (3,403,568 )   $ 41,898,417     $ (22,648,425 )   $ 162,745,344    
Corporate Debt     147,174,450       (31,011,844 )     122,202       (3,104,921 )     70,575,340       —       183,755,227    
Foreign
Government
Agency		     186,865,558       38,222,299       8,459       (2,323,660 )     77,813,323       —       300,585,979    
Foreign
Government
Obligation		     797,136,895       (56,876,048 )     7,009,388       (10,460,233 )     249,291,208       —       986,101,210    
Judgments     29,629,895       —       366,898       —       4,094,769       —       34,091,562    
Total Debt
Obligations		     1,370,203,940       (112,102,735 )     7,445,867       (19,292,382 )     443,673,057       (22,648,425 )     1,667,279,322    
Loan Assignments     31,003,330       2,280,057       346,804       697,465       3,559,441       —       37,887,097    
Loan Participations     109,399,494       (4,345,964 )     809,326       583,188       18,550,733       —       124,996,777    
Mutual Funds     15,629       —       —       —       (2,141 )     (13,488 )     —    
Promissory Notes     4,404,484       (1,280,131 )     (2,995,700 )     831,589       2,445,874       —       3,406,116    
Rights and Warrants     5,276,876       —       —       —       5,577,874       —       10,854,750    
Total Investments     1,520,303,753       (115,448,773 )     5,606,297       (17,180,140 )     473,804,838       (22,661,913 )     1,844,424,062    
Derivatives  
Swap Agreements     (62,892,483 )     (21,391,217 )     —       21,391,217       39,243,963       (8,722,240 )     (32,370,760 )  
Total   $ 1,457,411,270     $ (136,839,990 )   $ 5,606,297     $ 4,211,077     $ 513,048,801     $ (31,384,153 )   $ 1,812,053,302    

 

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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included


45


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. 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. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. The Fund had no futures contracts outstanding at the end of the period.


46


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss associated with purchasing put and call options is limited to the premium paid. Options contracts purchased by the Fund and outstanding at the end of the period are listed in the Fund's Schedule of Investments.

The Fund may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written 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 options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

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. A loan is


47


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

often administered by a bank or other financial institution 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 party from whom the Fund has purchased the participation and only upon receipt by that party of payments from the borrower and (ii) the Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement. As a result, the Fund may be subject to credit risk both of the party from whom it purchased the loan participation and the borrower. When the Fund purchases assignments of loans, it acquires direct rights against the borrower. Loan agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.


48


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to


49


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. As of August 31, 2009, the Fund had entered into reverse repurchase agreements, p lus accrued interest, amounting to $225,228,750, selling securities with a market value, plus accrued interest, of $239,066,755. Reverse repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and warrants held by the Fund 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 carryforwards 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


50


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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.

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

As of February 28, 2009, 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:

2/28/2017   $ (105,395,789 )  
Total   $ (105,395,789 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 2,613,648,286     $ 114,682,960     $ (479,331,046 )   $ (364,648,086 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon


51


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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 incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009, the premium on cash purchases of Fund shares was 0.50% of the amount invested and the fee on cash redemptions was 2.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund 's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant


52


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries. Investments in emerging co untry debt present risks that are not presented by 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 expropriate, or impose various types of foreign currency regulations or controls that impede the Fund's ability to repatriate, amounts it is entitled to receive. These factors may result in significant volatility in the values of the Fund's holdings. The markets for emerging country debt are typically less liquid than those of developed markets. In addition, fluctuations in exchange rates may adversely affect the U.S. dollar value of the Fund's investments denominated in foreign currencies and its foreign currency holdings.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to a repurchase or reverse repurchase agreement or other OTC derivatives contracts, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security will be unable or unwilling to make timely principal, interest, or settlement payments or otherwise honor its obligations. This risk is particularly pronounced for the Fund because it invests primarily in sovereign debt of emerging countries, which is typically below investment grade. Below investment grade bonds ("junk bonds") have speculative characteristics, and changes in economic conditions or other circumstances are


53


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

more likely to lead to an issuer's weakened capacity to make principal and interest payments than is the case with investment grade bonds. This risk is also particularly pronounced for the Fund because it typically uses OTC derivatives, including swap contracts with longer-term maturities, and may have significant exposure to a single counterparty. The risk of counterparty default is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Because the Fund typically invests in securities that are of lesser quality than those in its benchmark, in rapidly declining markets the percentage decline in the value of the Fund is likely to exceed that of its benchmark.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. The Fund may be required to sell less liquid securities at distressed prices or to meet redemption requests in-kind. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular the asset-backed securities held by the Fund through SDCF and Overlay Fund. These risks are particularly pronounced for the Fund because it invests primarily in sovereign debt of emerging countries, which is not widely traded and which may be subject to purchase and sale restrictions. In addition, because the Fund typically invests in securities that are less liquid than those in its benchmark, in rapidly declining markets the percentage decline in the Fund's investments is likely to exceed that of its benchmark.

• Leveraging Risk — The Fund's use of reverse repurchase agreements and other derivatives and securities lending may cause the portfolio to be leveraged. The Fund is not limited in the extent to which it may use derivatives or in the absolute face value of its derivative positions. Leverage increases the Fund's portfolio losses when the value of its investments declines.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Focused Investment Risk (increased risk from the Fund's focus on investments in a limited number of countries, regions, or sectors), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified. For more information about reverse repurchase agreements and other


54


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

derivatives, please refer to the descriptions of financial instruments (e.g. reverse repurchase agreements, swaps, futures and other types of derivative contracts) in Note 2 above as well as the discussion of the Fund's use of derivatives below.

Investments in emerging country debt present risks that are not presented by 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 expropriate, or impose various types of foreign currency regulations or controls that impede the Fund's ability to repatriate, amounts it receives. These factors may result in significant volatility in the values of the Fund's holdings. The markets for emerging country debt are typically less liquid than those of developed markets. In addition, fluctuations in exchange rates may adversely affect the U.S. dollar value of the Fund's investments denominated in foreign currencies and its foreign currency holdings.

The Fund's investments in many countries and credit default swaps it has written expose the Fund to a significant risk of loss. The Fund's financial position could be adversely affected (depending on whether the Fund sold or bought the credit protection) in the event of a default by any of these countries on obligations held by the Fund, obligations referenced in those credit default swaps or obligations issued by them generally.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of u nderlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of


55


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underlying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

The Fund uses its cash balance to meet its collateral obligations and for other purposes. There is no assurance that the Fund's cash balance will be sufficient to meet those obligations. If it is not, the Fund would be required to liquidate portfolio positions. To manage the Fund's cash collateral needs, the Manager reserves the right to reduce or eliminate the Fund's derivative exposures. A reduction in those exposures may cause the performance of the 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.

Among other trading agreements, the Fund is party to International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Agreements") with select counterparties that generally govern over-the-counter derivative transactions entered into by the Fund. The ISDA Master Agreements typically include representations and warranties as well as contractual terms related to collateral, events of default, termination events, and other provisions. Termination events include the decline in the net assets of the Fund below a certain level over a specified period of time and entitle a counterparty to elect to terminate early with respect to some or all the transactions under the ISDA Agreement with that counterparty. Such an election by one or more of the counterparties could have a material adverse impact on the Fund's operations. Due to declines in the net assets of the Fund prior to August 31, 2009, one or more counterparties are entitled to terminate early but none has taken such action.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.


56


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund uses derivatives as a substitute for direct investment in securities or other assets. In particular, the Fund may use swaps (including credit default swaps) or other derivatives on an index, a single security or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.


57


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


58


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Assets:  
Investments, at value
(purchased
options, rights
and warrants)		   $ 2,727,864     $ —     $ —     $ —     $ 10,854,750     $ 13,582,614    
Unrealized
appreciation on
futures contracts*		     —       —       —       —       —       —    
Unrealized
appreciation on
forward currency
contracts		     —       2,200,395       —       —       —       2,200,395    
Unrealized
appreciation on
swap agreements		     3,731,596       —       410,247,535       —       22,221,823       436,200,954    
Total   $ 6,459,460     $ 2,200,395     $ 410,247,535     $ —     $ 33,076,573     $ 451,983,963    
Liabilities:  
Written options
outstanding		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized
depreciation on
futures contracts*		     —       —       —       —       —       —    
Unrealized
depreciation on
forward currency
contracts		     —       (1,235,343 )     —       —       —       (1,235,343 )  
Unrealized
depreciation on
swap agreements		     (7,681,194 )     —       (436,919,294 )     —       (18,286,805 )     (462,887,293 )  
Total   $ (7,681,194 )   $ (1,235,343 )   $ (436,919,294 )   $ —     $ (18,286,805 )   $ (464,122,636 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables. The foregoing does not include the Fund's reverse repurchase agreements.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


59


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Net Realized Gain
(Loss) on:		  
Investments (purchased
options, rights and
warrants)		   $ (3,721,230 )   $ —     $ —     $ —     $ —     $ (3,721,230 )  
Futures contracts     9,103       —       —       —       —       9,103    
Swap contracts     3,246,119       —       23,163,389       —       (7,588,630 )     18,820,878    
Written options     —       —       —       —       —       —    
Forward currency
contracts		     —       (22,626,987 )     —       —       —       (22,626,987 )  
Total   $ (466,008 )   $ (22,626,987 )   $ 23,163,389     $ —     $ (7,588,630 )   $ (7,518,236 )  
Change in Unrealized
Appreciation
(Depreciation) on:		  
Investments (purchased
options, rights and
warrants)		   $ 8,294,217     $ —     $ —     $ —     $ —     $ 8,294,217    
Futures contracts     29,089       —       —       —       —       29,089    
Swap contracts     (5,143,565 )     —       33,759,405       —       45,983,685       74,599,525    
Written options     —       —       —       —       —       —    
Forward currency
contracts		     —       (31,245,195 )     —       —       —       (31,245,195 )  
Total   $ 3,179,741     $ (31,245,195 )   $ 33,759,405     $ —     $ 45,983,685     $ 51,677,636    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables. The foregoing does not include the Fund's reverse repurchase agreements.


60


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Futures   Swaps   Options   Rights/
Warrants		  
Average notional
amount outstanding		   $ 520,855,706     $ 344,454,340     $ 6,304,432,435     $ 217,869,325     $ 8,639,544    
Highest notional
amount outstanding		     578,451,382       2,411,180,379       6,458,424,506       296,742,706       10,854,750    
Lowest notional
amount outstanding		     485,048,962       —       6,228,333,145       184,377,444       5,276,876    

 

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 1.71% of the net assets of the Fund as of August 31, 2009. Judgments were awarded in the Fund's favor on September 24, 2007; however, the Fund's ability to collect on those judgments remains uncertain, and the Fund is not able to transfer or sell the judgments without court consent. Costs associated with this action are borne by the Fund.

In July 2008, the Fund entered into litigation against GNPA Limited ("GNPA") (an entity wholly owned by the government of Ghana) seeking payment on an unconditional promissory note issued by GNPA. The defaulted promissory note, which continues to be valued according to the Fund's valuation policy, represented less than 0.1% of the net assets of the Fund as of August 31, 2009. Costs associated with this action are borne by the Fund.

SPHF, an investment of the Fund, has litigation pending against various entities related to the 2002 default of securities previously held by SPHF. The outcome of the lawsuits against the remaining defendants is not known and any potential recoveries are not reflected in the net asset value of SPHF.

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 for an amount equal to the fees and expenses incurred indirectly by the Fund through its investment in U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses, which include fees and expenses of the independent Trustees of the Trust, fees and expenses for legal


61


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer (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 (including an exchange-traded fund) or would be an investment company under the 1940 Act, but for the exceptions to the definition of investment company provided in Sections 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, 2009, 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 %     0.001 %     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, 2009 was $16,323 and $9,384, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $269,480,621 and $318,513,409, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


62


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 44.43% 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.

As of August 31, 2009, 0.31% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 14.97% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     3,314,262     $ 22,982,213       29,283,609     $ 176,799,786    
Shares issued to shareholders
in reinvestment of distributions		     877,471       6,115,971       8,768,892       57,123,655    
Shares repurchased     (17,136,497 )     (124,287,338 )     (19,580,527 )     (159,212,595 )  
Purchase premiums     —       38,090       —       3,273    
Redemption fees     —       2,575,334       —       92,578    
Net increase (decrease)     (12,944,764 )   $ (92,575,730 )     18,471,974     $ 74,806,697    
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     12,951,169     $ 96,871,777       8,624,354     $ 56,358,374    
Shares issued to shareholders
in reinvestment of distributions		     233,337       1,626,358       32,907,567       209,783,649    
Shares repurchased     (53,386,083 )     (378,687,676 )     (30,713,578 )     (190,668,206 )  
Purchase premiums     —       75,297       —       7,071    
Redemption fees     —       5,543,392       —       294,233    
Net increase (decrease)     (40,201,577 )   $ (274,570,852 )     10,818,343     $ 75,775,121    

 


63


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 67,991,002     $ —     $ —     $ 517,430     $ —     $ 63,816,116    
GMO Special Purpose
Holding Fund		     15,629       —       —       —       —       13,488    
GMO U.S. Treasury Fund     —       17,608,312       11,000,000       14,001       —       6,610,711    
GMO World Opportunity
Overlay Fund		     27,808,483       —       —       —       —       29,339,087 o   
Totals   $ 95,815,114     $ 17,608,312     $ 11,000,000     $ 531,431     $ —     $ 99,779,402    

 

o  The Fund received return of capital distributions in the amount of $2,541,198.

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. Beginning October 1, 2009, the Fund ordinarily expected to pay redemption requests with cash (less a redemption fee).


64



GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Board Review of Investments Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered information provided by the Manager addressing the Fund's performance, including a performance attribution analysis. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those p ersonnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.


65


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Board Review of Investments Management Agreement — (Continued)
August 31, 2009 (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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trust ees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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, th at 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


66


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Board Review of Investments Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


67


GMO Emerging Country Debt Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.60 %   $ 1,000.00     $ 1,339.00     $ 3.54    
2) Hypothetical     0.60 %   $ 1,000.00     $ 1,022.18     $ 3.06    
Class IV      
1) Actual     0.55 %   $ 1,000.00     $ 1,338.90     $ 3.24    
2) Hypothetical     0.55 %   $ 1,000.00     $ 1,022.43     $ 2.80    

 

*  Expenses are calculated using each Class's annualized expense ratio (including interest expense and indirect expenses incurred) for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


68



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     97.0 %  
Short-Term Investments     2.0    
Futures     0.3    
Forward Currency Contracts     0.1    
Preferred Stocks     0.0    
Rights and Warrants     0.0    
Other     0.6    
      100.0 %  
Country / Region Summary**   % of Investments  
Euro Region***     27.3 %  
Japan     26.8    
United Kingdom     22.7    
Switzerland     8.7    
Sweden     4.5    
Australia     4.3    
Canada     1.8    
Singapore     1.4    
Denmark     1.1    
Hong Kong     0.9    
Norway     0.3    
New Zealand     0.2    
      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, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia 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, 2009 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        MUTUAL FUNDS — 100.0%        
        Affiliated Issuers — 100.0%        
  645,840     GMO Flexible Equities Fund, Class VI     13,194,512    
  14,630,119     GMO International Growth Equity Fund, Class IV     280,166,787    
  13,966,152     GMO International Intrinsic Value Fund, Class IV     287,283,748    
  1,587,308     GMO International Small Companies Fund, Class III     10,920,679    
    TOTAL MUTUAL FUNDS (COST $830,069,382)     591,565,726    
        SHORT-TERM INVESTMENTS — 0.0%        
  31,497     State Street Eurodollar Time Deposit, 0.01%, due 09/01/09     31,497    
    TOTAL SHORT-TERM INVESTMENTS (COST $31,497)     31,497    
        TOTAL INVESTMENTS — 100.0%
(Cost $830,100,879)		     591,597,223    
        Other Assets and Liabilities (net) — (0.0%)     (42,002 )  
    TOTAL NET ASSETS — 100.0%   $ 591,555,221    

 

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, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $31,497) (Note 2)   $ 31,497    
Investments in affiliated issuers, at value (cost $830,069,382) (Notes 2 and 8)     591,565,726    
Receivable for investments sold     62,683    
Receivable for expenses reimbursed by Manager (Note 3)     8,773    
Total assets     591,668,679    
Liabilities:  
Payable for Fund shares repurchased     62,683    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     1,015    
Accrued expenses     49,760    
Total liabilities     113,458    
Net assets   $ 591,555,221    
Net assets consist of:  
Paid-in capital   $ 908,952,186    
Accumulated undistributed net investment income     9,949,642    
Accumulated net realized loss     (88,842,951 )  
Net unrealized depreciation     (238,503,656 )  
    $ 591,555,221    
Net assets attributable to:  
Class III shares   $ 591,555,221    
Shares outstanding:  
Class III     45,267,664    
Net asset value per share:  
Class III   $ 13.07    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 9,957,925    
Total investment income     9,957,925    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     24,768    
Audit and tax fees     16,376    
Legal fees     9,476    
Trustees fees and related expenses (Note 3)     4,895    
Registration fees     1,104    
Miscellaneous     3,864    
Total expenses     60,483    
Fees and expenses reimbursed by Manager (Note 3)     (51,704 )  
Expense reductions (Note 2)     (496 )  
Net expenses     8,283    
Net investment income (loss)     9,949,642    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (45,686,239 )  
Net realized gain (loss)     (45,686,239 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     211,558,940    
Net realized and unrealized gain (loss)     165,872,701    
Net increase (decrease) in net assets resulting from operations   $ 175,822,343    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 9,949,642     $ 24,903,946    
Net realized gain (loss)     (45,686,239 )     (16,891,869 )  
Change in net unrealized appreciation (depreciation)     211,558,940       (351,591,999 )  
Net increase (decrease) in net assets from operations     175,822,343       (343,579,922 )  
Distributions to shareholders from:  
Net investment income  
Class III     —       (24,913,805 )  
Net realized gains  
Class III     —       (81,291,869 )  
      —       (106,205,674 )  
Net share transactions (Note 7):  
Class III     6,449,492       140,586,628    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     5,113       87,418    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     6,454,605       140,674,046    
Total increase (decrease) in net assets     182,276,948       (309,111,550 )  
Net assets:  
Beginning of period     409,278,273       718,389,823    
End of period (including accumulated undistributed net investment
income of $9,949,642 and $0, respectively)		   $ 591,555,221     $ 409,278,273    

 

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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007(a)   
Net asset value, beginning of period   $ 9.20     $ 20.63     $ 22.16     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.22       0.65       0.47       0.53    
Net realized and unrealized gain (loss)     3.65       (9.20 )     0.52       2.45    
Total from investment operations     3.87       (8.55 )     0.99       2.98    
Less distributions to shareholders:  
From net investment income     —       (0.62 )     (1.24 )     (0.72 )  
From net realized gains     —       (2.26 )     (1.28 )     (0.10 )  
Total distributions     —       (2.88 )     (2.52 )     (0.82 )  
Net asset value, end of period   $ 13.07     $ 9.20     $ 20.63     $ 22.16    
Total Return(c)      42.07 %**      (46.05 )%     3.57 %     14.93 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 591,555     $ 409,278     $ 718,390     $ 440,431    
Net expenses to average daily net assets(d)(e)      0.00 %(f)*      0.00 %(f)      0.00 %(f)      0.00 %*   
Net investment income to average daily
net assets(b) 		     3.91 %*      4.12 %     2.04 %     3.32 %*   
Portfolio turnover rate     9 %**      33 %     4 %     1 %**   
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.02 %*      0.01 %     0.02 %     0.03 %*   
Purchase premiums and redemption fees
consisted of the following per share amounts:† 		   $ 0.00 (g)    $ 0.00 (g)    $ 0.00 (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, 2009 (Unaudited)

1.  Organization

GMO International Opportunities Equity Allocation Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 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. The Fund also may invest in shares of other series of the Trust, including the GMO Fixed Income Funds, GMO Alpha Only Fund, GMO Flexible Equities Fund, and GMO Alternative Asset Opportunity Fund (the GMO Funds in which the Fund invests are collectively referred to as "underlying funds") . Although the Fund's primary exposure is to foreign equity securities (including emerging country equities, both growth and value style equities, and equities of any market capitalization), the Fund also may have exposure to foreign and U.S. fixed income securities (including fixed income securities of any credit quality and having any maturity or duration), as well as to the investment returns of commodities and, from time to ti me, other alternative asset classes. Under normal circumstances, the Fund invests at least 80% of its assets in equity investments (which include common stocks and other stock-related securities, such as preferred stocks, convertible securities, and depository receipts). The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and other cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury 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. As of August 31, 2009, shares of GMO Flexible Equities Fund were 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


7


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 generally 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 93.17% 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. Those underlying funds classify such securities under SFAS 157 (as defined below) as Level 2.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities


8


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Mutual Funds   $ 578,371,214     $ 13,194,512     $ —     $ 591,565,726    
Short-Term Investments     31,497       —       —       31,497    
Total   $ 578,402,711     $ 13,194,512     $ —     $ 591,597,223    

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, 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 carryforwards 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.


9


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $7,394,778.

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 909,259,565     $ 1,275,652     $ (318,937,994 )   $ (317,662,342 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. 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 uses the identified cost basis for the purposes of determining the cost basis.


10


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

For the six-month period ended August 31, 2009, the premium on cash purchases and the fee on cash redemptions were each 0.04% of the amount invested or redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager may consider known cash flows out of or into other series of the Trust when placing orders for the cash purchase or redemption of shares by the Fund shareholders or other prospective or existing shareholders of the Funds for whom GMO provides asset allocation advice. Consequently, the Fund and those other shareholders for whom GMO provides asset allocation advice will tend to benefit from waivers of the Funds' purchase premiums and redemption fees to a greater extent than other prospective and existing shareholders of the other series of the Trust. All or a portion of the Fund's purchase premiums and/or redemption fees may be waived at the Manager's discretion when they are de minimis and/or the Manager deems it equitable to do so, including without limitation when the weighted average of (i) the estimated transaction costs for directly held assets and (ii) the purchase premium and/or redemption fees, if any, imposed by the underlying funds are less than the purchase premiums and/or redemption fees imposed by the Fund. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of a Fund's shares if the Fund will not incur transaction costs or will incur/reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a


11


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund, including those risks to which the Fund is exposed as a result of its investments in the underlying funds. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities held by underlying funds may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund and its underlying funds generally seek to be fully invested and normally do not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's and the underlying funds' investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. An underlying fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of an underlying fund's foreign currency holdings and investments denominated in foreign currencies.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent an underlying fund from selling securities or closing derivative positions at desirable prices.

• Derivatives Risk — The use of derivatives by underlying funds involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset.


12


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in the underlying funds, including the risk that the underlying funds in which it invests will not perform as expected. Because the Fund bears the fees and expenses of the underlying funds in which it invests, investments in underlying funds with higher fees or expenses than the underlying funds in which the Fund is invested will increase the Fund's total expenses. The fees and expenses associated with an investment in the Fund are less predictable and may potentially be higher than fees and expenses associated with an investment in funds that charge a fixed management fee.

Other principal risks of an investment in the Fund include Market Risk – Fixed Income Securities (risk that the value of an underlying fund's fixed income securities will decline during periods of rising interest rates and/or widening of credit spreads), Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments by an underlying fund in companies with smaller market capitalizations), Commodities Risk (value of an underlying fund's shares may be affected by factors particular to the commodities markets and may fluctuate more than the share value of a fund with a broader range of investments), Leveraging Risk (increased risks from use of reverse repurchase agreements and other derivatives and securities lending by an underlying fund), Credit and Counterparty Risk (risk of default of an issuer of a portfolio security or a derivatives counterparty of an underlying fund or a borrower of an underlying fund's securities), and Short Sales Risk (risk that an underlying fund's loss on the short sale of securities that it does not own is unlimited). Some of the underlying funds are non-diversified investment companies under the 1940 Act, and therefore a decline in the market value of a particular security held by those funds may affect their performance more than if they were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.

3.  Fees and other transactions with affiliates

The Manager decides how to allocate the assets of the Fund among underlying funds. The Manager does not charge the Fund a management fee or shareholder service fee, but it receives management and shareholder service fees from the underlying funds in which the Fund invests. Because those fees vary from fund to fund, the levels of indirect net expenses set forth below are affected by the Manager's asset allocation decisions.


13


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.00% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) or would be an investment co mpany 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, nonrecurring 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, 2009, 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  
  0.505 %     0.090 %     0.595 %  

 

      

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, 2009 was $3,883 and $2,300, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $62,302,289 and $45,919,462, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


14


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 34.15% 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.

As of August 31, 2009, 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.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     4,464,788     $ 46,186,956       9,740,750     $ 162,721,575    
Shares issued to shareholders
in reinvestment of distributions		     —       —       7,405,391       104,659,498    
Shares repurchased     (3,704,862 )     (39,737,464 )     (7,459,920 )     (126,794,445 )  
Purchase premiums     —       5,113       —       55,087    
Redemption fees     —       —       —       32,331    
Net increase (decrease)     759,926     $ 6,454,605       9,686,221     $ 140,674,046    

 


15


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value, end
of period		  
GMO Flexible Equities
Fund, Class VI		   $ 10,036,327     $ 438,376     $ 450,000     $ —     $ —     $ 13,194,512    
GMO International Growth
Equity Fund, Class IV		     204,565,281       32,866,251       25,780,093       6,548,910       —       280,166,787    
GMO International
Intrinsic Value
Fund, Class IV		     194,708,590       19,030,209       19,689,369       3,372,390       —       287,283,748    
GMO International
Small Companies
Fund, Class III		     —       9,967,453       —       36,625       —       10,920,679    
Totals   $ 409,310,198     $ 62,302,289     $ 45,919,462     $ 9,957,925     $ —     $ 591,565,726    

 

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. Effective September 14, 2009, the premiums on cash purchases and fee on cash redemptions were 0.00%.


16



GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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


17


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 (including the effect of recent market events and changes in assets under management and revenues on such profitability); 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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 International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


19


GMO International Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.60 %   $ 1,000.00     $ 1,420.70     $ 3.66    
2) Hypothetical     0.60 %   $ 1,000.00     $ 1,022.18     $ 3.06    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, 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. Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     95.5 %  
Short-Term Investments     3.0    
Futures     0.1    
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 U.S. Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    3,236,590     GMO Quality Fund, Class VI     56,931,620    
    5,771,861     GMO U.S. Core Equity Fund, Class VI     56,448,798    
    96,623     GMO U.S. Small/Mid Cap Growth Fund, Class III     945,938    
    183,134     GMO U.S. Small/Mid Cap Value Fund, Class III     1,043,863    
    TOTAL MUTUAL FUNDS (COST $133,256,094)     115,370,219    
        SHORT-TERM INVESTMENTS — 0.0%  
    28,573     State Street Eurodollar Time Deposit, 0.01%, due 09/01/09     28,573    
    TOTAL SHORT-TERM INVESTMENTS (COST $28,573)     28,573    
          TOTAL INVESTMENTS — 100.0%
(Cost $133,284,667)		     115,398,792    
          Other Assets and Liabilities (net) — (0.0%)     (21,964 )  
    TOTAL NET ASSETS — 100.0%   $ 115,376,828    

 

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, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $28,573) (Note 2)   $ 28,573    
Investments in affiliated issuers, at value (cost $133,256,094) (Notes 2 and 8)     115,370,219    
Receivable for expenses reimbursed by Manager (Note 3)     4,185    
Total assets     115,402,977    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     255    
Accrued expenses     25,894    
Total liabilities     26,149    
Net assets   $ 115,376,828    
Net assets consist of:  
Paid-in capital   $ 140,596,302    
Accumulated undistributed net investment income     1,190,685    
Accumulated net realized loss     (8,524,284 )  
Net unrealized depreciation     (17,885,875 )  
    $ 115,376,828    
Net assets attributable to:  
Class III shares   $ 115,376,828    
Shares outstanding:  
Class III     27,308,068    
Net asset value per share:  
Class III   $ 4.23    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 1,191,842    
Total investment income     1,191,842    
Expenses:  
Audit and tax fees     15,640    
Custodian, fund accounting agent and transfer agent fees     4,692    
Registration fees     2,024    
Legal fees     1,840    
Trustees fees and related expenses (Note 3)     993    
Miscellaneous     826    
Total expenses     26,015    
Fees and expenses reimbursed by Manager (Note 3)     (24,564 )  
Expense reductions (Note 2)     (294 )  
Net expenses     1,157    
Net investment income (loss)     1,190,685    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     2,738    
Investments in affiliated issuers     (116,873 )  
Net realized gain (loss)     (114,135 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     22,267,929    
Net realized and unrealized gain (loss)     22,153,794    
Net increase (decrease) in net assets resulting from operations   $ 23,344,479    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 1,190,685     $ 1,642,157    
Net realized gain (loss)     (114,135 )     (7,896,007 )  
Change in net unrealized appreciation (depreciation)     22,267,929       (27,592,432 )  
Net increase (decrease) in net assets from operations     23,344,479       (33,846,282 )  
Distributions to shareholders from:  
Net investment income  
Class III     —       (1,637,551 )  
Net realized gains  
Class III     —       (1,644,462 )  
      —       (3,282,013 )  
Net share transactions (Note 7):  
Class III     22,612,116       11,468,444    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     4,778       8,571    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     22,616,894       11,477,015    
Total increase (decrease) in net assets     45,961,373       (25,651,280 )  
Net assets:  
Beginning of period     69,415,455       95,066,735    
End of period (including accumulated undistributed net investment
income of $1,190,685 and $0, respectively)		   $ 115,376,828     $ 69,415,455    

 

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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 3.31     $ 5.11     $ 6.38     $ 6.56     $ 6.41     $ 6.40    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.05       0.09       0.11       0.10       0.10       0.11    
Net realized and unrealized
gain (loss)		     0.87       (1.70 )     (0.42 )     0.28       0.31       0.34    
Total from investment
operations		     0.92       (1.61 )     (0.31 )     0.38       0.41       0.45    
Less distributions to shareholders:  
From net investment income     —       (0.08 )     (0.32 )     (0.15 )     (0.12 )     (0.14 )  
From net realized gains     —       (0.11 )     (0.64 )     (0.41 )     (0.14 )     (0.30 )  
Total distributions     —       (0.19 )     (0.96 )     0.56       (0.26 )     (0.44 )  
Net asset value, end of period   $ 4.23     $ 3.31     $ 5.11     $ 6.38     $ 6.56     $ 6.41    
Total Return(b)      27.79 %**      (32.42 )%     (6.43 )%     6.48 %     6.45 %     7.18 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 115,377     $ 69,415     $ 95,067     $ 149,312     $ 173,146     $ 151,378    
Net expenses to average
daily net assets(c) 		     0.00 %(d)(e)*      0.00 %(d)(e)      0.00 %(d)(e)      0.04 %     0.01 %     0.00 %(e)   
Net investment income to
average daily net assets(a) 		     2.36 %*      1.94 %     1.78 %     1.63 %     1.52 %     1.75 %  
Portfolio turnover rate     1 %**      39 %     26 %     35 %     13 %     16 %  
Fees and expenses reimbursed
and/or waived by the
Manager to average
daily net assets:		     0.05 %*      0.06 %     0.04 %     0.18 %     0.51 %     0.54 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts:(f)† 		   $ 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. 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)  Net expenses were less than 0.01%.

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

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


6



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO U.S. Equity Allocation Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 Russell 3000 Index. The Fund is a fund of funds and invests primarily in shares of the GMO U.S. Equity Funds. The Fund also may invest in shares of GMO Flexible Equities Fund (the GMO Funds in which the Fund invests are collectively referred to as "underlying funds"). The Fund seeks exposure to U.S. equity securities (including both growth and value style equities and equities of any market capitalization) in the Wilshire 5000 Stock Index through its investments in the underlying funds. Although the Fund's primary exposure is to U.S. equity securities, the Fund also may have exposure to foreign equity securities. Under normal circumstances, the Fund invests at least 80% of its assets in equity investments (which include common stocks and other stock-related securities, such as preferred stocks, convertible securities, and depository receipts) tied economically t o the U.S. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and other cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

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.


7


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Portfolio valuation

Shares of the underlying funds and other mutual funds are generally 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 4.70% 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. Those underlying funds classify such securities under SFAS 157 (as defined below) as Level 2.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

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


8


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Mutual Funds   $ 115,370,219     $ —     $ —     $ 115,370,219    
Short-Term Investments     28,573       —       —       28,573    
Total   $ 115,398,792     $ —     $ —     $ 115,398,792    

 

Underlying funds are classified above as either Level 1 or Level 2. For the underlying funds' summary of valuation inputs (including Level 3 inputs, if any) please refer to the respective fund's portfolio valuation note.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, 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 carryforwards 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.


9


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $62,690.

As of February 28, 2009, 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 )  
2/28/2017     (4,328,424 )  
Total   $ (4,464,616 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 137,167,509     $ —     $ (21,768,717 )   $ (21,768,717 )  

 

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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. 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 uses the identified cost basis for the purposes of determining the cost basis.


10


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund, including those risks to which the Fund is exposed as a result of its investments in underlying funds. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities held by underlying funds may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund and its underlying funds generally seek to be fully invested and normally do not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's and the underlying funds' investments.

• Smaller Company Risk — The securities of small- and mid-cap companies typically are less widely held, trade less frequently and in lesser quantities, and have market prices that may fluctuate more than those of securities of larger capitalization companies.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in the underlying funds, including the risk that the underlying funds in which it invests will not perform as expected. Because the Fund bears the fees and expenses of the underlying funds in which it invests, investments in underlying funds with higher fees or expenses than the underlying funds in which the Fund is invested will increase the Fund's total expenses. The fees and expenses associated with an investment in the Fund are less predictable and may potentially be higher than fees and expenses associated with an investment in funds that charge a fixed management fee.


11


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extend than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. An underlying fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of an underlying fund's foreign currency holdings and investments denominated in foreign currencies.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent an underlying fund from selling securities or closing derivative positions at desirable prices.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by an underlying fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by underlying funds), Credit and Counterparty Risk (risk of default of an underlying fund's derivatives counterparty or a borrower of an underlying fund's securities), Real Estate Risk (risk to an underlying fund that concentrates it s assets in real estate-related investments that factors affecting the real estate industry may cause the value of the underlying fund's investments to fluctuate more than if it invested in securities of companies in a broader range of industries), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). The Fund and some of the underlying funds are non-diversified investment companies under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund or an underlying fund may affect the Fund's or the underlying fund's performance more than if the Fund or the underlying fund were diversified.

Purchases and redemptions of Fund shares

For the six months ended August 31, 2009, the premium on cash purchases and the fee on cash redemptions were each 0.02% of the amount invested or redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager may consider known cash flows out of or into other series of the Trust when placing orders for the cash purchase or redemption of share s by the Fund shareholders or other prospective or existing shareholders of


12


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the Funds for whom GMO provides asset allocation advice. Consequently, the Fund and those other shareholders for whom GMO provides asset allocation advice will tend to benefit from waivers of the Funds' purchase premiums and redemption fees to a greater extent than other prospective and existing shareholders of the other series of the Trust. All or a portion of the Fund's purchase premiums and /or redemption fees may be waived at the Manager's discretion when they are de minimis and/or the Manager deems it equitable to do so, including without limitation when the weighted average of (i) the estimated transaction costs for directly held assets and (ii) the purchase premiums and /or redemption fees, if any, imposed by the underlying funds are less than the purchase premiums and /or redemption fees imposed by the Fund. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redempt ion of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.

3.  Fees and other transactions with affiliates

The Manager decides how to allocate the assets of the Fund among underlying funds. The Manager does not charge the Fund a management fee or shareholder service fee, but it receives management and shareholder service fees from the underlying funds in which the Fund invests. Because those fees vary from fund to fund, the levels of indirect net expenses set forth below are affected by the Manager's asset allocation decisions.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund


13


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Fees and Expenses", as defined below) exceed 0.00% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) 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 c ertain 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, 2009, 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  
  0.323 %     0.057 %     0.380 %  

 

      

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, 2009 was $809 and $460, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $24,434,308 and $634,000, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.


14


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

6.  Principal shareholders and related parties

As of August 31, 2009, 73.60% 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.

As of August 31, 2009, 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 each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     6,500,859     $ 23,248,877       7,356,216     $ 34,747,429    
Shares issued to shareholders
in reinvestment of distributions		     —       —       743,764       3,203,902    
Shares repurchased     (151,910 )     (636,761 )     (5,738,257 )     (26,482,887 )  
Purchase premiums     —       4,651       —       3,848    
Redemption fees     —       127       —       4,723    
Net increase (decrease)     6,348,949     $ 22,616,894       2,361,723     $ 11,477,015    

 


15


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value, end
of period		  
GMO Quality Equity Fund,
Class VI		   $ 36,936,978     $ 10,207,587     $ 634,000     $ 607,587     $ —     $ 56,931,620    
GMO U.S. Core Equity
Fund, Class VI		     31,320,002       13,818,127       —       575,661       —       56,448,798    
GMO U.S. Small/Mid Cap
Growth Fund, Class III		     542,365       201,042       —       1,042       —       945,938    
GMO U.S. Small/Mid Cap
Value Fund, Class III		     619,508       207,552       —       7,552       —       1,043,863    
Totals   $ 69,418,853     $ 24,434,308     $ 634,000     $ 1,191,842     $ —     $ 115,370,219    

 

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. Effective September 14, 2009, the Fund's purchase premium and redemption fees were each 0.00%.


16



GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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


17


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 (including the effect of recent market events and changes in assets under management and revenues on such profitability); 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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 U.S. Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


19


GMO U.S. Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     $ 1,277.90     $ 2.18    
2) Hypothetical     0.38 %   $ 1,000.00     $ 1,023.29     $ 1.94    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, 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 World Opportunities Equity Allocation Fund
(A Series of GMO Trust)
Semiannual Report
August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     96.0 %  
Short-Term Investments     2.5    
Futures     0.2    
Forward Currency Contracts     0.0    
Preferred Stocks     0.0    
Rights and Warrants     0.0    
Other     1.3    
      100.0 %  
Country / Region Summary**   % of Investments  
United States     49.3 %  
Japan     14.0    
Euro Region***     13.4    
United Kingdom     11.6    
Switzerland     5.1    
Sweden     2.1    
Australia     2.0    
Canada     0.8    
Singapore     0.6    
Denmark     0.5    
Hong Kong     0.4    
New Zealand     0.1    
Norway     0.1    
      100.0 %  

 

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

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

***  The "Euro Region" is comprised of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia 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, 2009 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
      MUTUAL FUNDS — 100.0%  
      Affiliated Issuers — 100.0%  
    1,042,013     GMO Flexible Equities Fund, Class VI     21,288,327    
    10,469,235     GMO International Growth Equity Fund, Class IV     200,485,859    
    10,105,751     GMO International Intrinsic Value Fund, Class IV     207,875,288    
    2,647,960     GMO International Small Companies Fund, Class III     18,217,962    
    19,886,760     GMO Quality Fund, Class VI     349,808,111    
    16,237,710     GMO U.S. Core Equity Fund, Class VI     158,804,799    
    TOTAL MUTUAL FUNDS (COST $1,181,608,136)     956,480,346    
      SHORT-TERM INVESTMENTS — 0.0%  
    31,838     State Street Eurodollar Time Deposit, 0.01%, due 09/01/09     31,838    
    TOTAL SHORT-TERM INVESTMENTS (COST $31,838)     31,838    
        TOTAL INVESTMENTS — 100.0%
(Cost $1,181,639,974)		     956,512,184    
        Other Assets and Liabilities (net) — (0.0%)     (41,593 )  
    TOTAL NET ASSETS — 100.0%   $ 956,470,591    

 

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, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $31,838) (Note 2)   $ 31,838    
Investments in affiliated issuers, at value (cost $1,181,608,136) (Notes 2 and 8)     956,480,346    
Receivable for expenses reimbursed by Manager (Note 3)     10,075    
Total assets     956,522,259    
Liabilities:  
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     1,557    
Accrued expenses     50,111    
Total liabilities     51,668    
Net assets   $ 956,470,591    
Net assets consist of:  
Paid-in capital   $ 1,273,565,466    
Accumulated undistributed net investment income     12,794,461    
Accumulated net realized loss     (104,761,546 )  
Net unrealized depreciation     (225,127,790 )  
    $ 956,470,591    
Net assets attributable to:  
Class III shares   $ 956,470,591    
Shares outstanding:  
Class III     58,337,190    
Net asset value per share:  
Class III   $ 16.40    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 12,805,226    
Total investment income     12,805,226    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     23,460    
Audit and tax fees     16,376    
Legal fees     15,180    
Trustees fees and related expenses (Note 3)     7,838    
Chief Compliance Officer (Note 3)     3,680    
Registration fees     1,472    
Miscellaneous     2,391    
Total expenses     70,397    
Fees and expenses reimbursed by Manager (Note 3)     (58,880 )  
Expense reductions (Note 2)     (752 )  
Net expenses     10,765    
Net investment income (loss)     12,794,461    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (36,978,800 )  
Net realized gain (loss)     (36,978,800 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     261,622,443    
Net realized and unrealized gain (loss)     224,643,643    
Net increase (decrease) in net assets resulting from operations   $ 237,438,104    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 12,794,461     $ 27,359,899    
Net realized gain (loss)     (36,978,800 )     (67,041,232 )  
Change in net unrealized appreciation (depreciation)     261,622,443       (387,000,660 )  
Net increase (decrease) in net assets from operations     237,438,104       (426,681,993 )  
Distributions to shareholders from:  
Net investment income  
Class III     —       (27,428,339 )  
Net realized gains  
Class III     —       (48,768,521 )  
      —       (76,196,860 )  
Net share transactions (Note 7):  
Class III     20,507,611       256,821,808    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     —       207,495    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     20,507,611       257,029,303    
Total increase (decrease) in net assets     257,945,715       (245,849,550 )  
Net assets:  
Beginning of period     698,524,876       944,374,426    
End of period (including accumulated undistributed net
investment income of $12,794,461 and $0, respectively)		   $ 956,470,591     $ 698,524,876    

 

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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006(a)   
Net asset value, beginning of period   $ 12.29     $ 21.71     $ 24.25     $ 22.49     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.22       0.53       0.43       0.40       0.37    
Net realized and unrealized gain (loss)     3.89       (8.50 )     0.01 (c)      2.93       2.78    
Total from investment operations     4.11       (7.97 )     0.44       3.33       3.15    
Less distributions to shareholders:  
From net investment income     —       (0.54 )     (1.10 )     (0.73 )     (0.46 )  
From net realized gains     —       (0.91 )     (1.88 )     (0.84 )     (0.20 )  
Total distributions     —       (1.45 )     (2.98 )     (1.57 )     (0.66 )  
Net asset value, end of period   $ 16.40     $ 12.29     $ 21.71     $ 24.25     $ 22.49    
Total Return(d)      33.44 %**      (38.63 )%     0.72 %     14.94 %     15.90 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 956,471     $ 698,525     $ 944,374     $ 902,324     $ 407,230    
Net expenses to average daily
net assets(e)(f) 		     0.00 %(g)*      0.00 %(g)      0.00 %(g)      0.00 %     0.00 %*   
Net investment income to average
daily net assets(b) 		     3.04 %*      2.89 %     1.72 %     1.68 %     2.42 %*   
Portfolio turnover rate     8 %**      35 %     20 %     12 %     5 %**   
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.01 %*      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 (i)    $ 0.00 (i)    $ 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 and/or waived during the periods shown and assumes the effect of reinvested distributions. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder.

(e)  Net expenses exclude expenses incurred indirectly through 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 include the effect of expense reductions.

(h)  There were no redemption fees during the period.

(i)  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, 2009 (Unaudited)

1.  Organization

GMO World Opportunities Equity Allocation Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 MSCI World Index. The Fund is a fund of funds and invests primarily in shares of the GMO International Equity Funds and the GMO U.S. Equity Funds. The Fund also may invest in shares of other series of the Trust, including the GMO Fixed Income Funds, GMO Alpha Only Fund, GMO Flexible Equities Fund, and GMO Alternative Asset Opportunity Fund (the GMO Funds in which the Fund invests are collectively referred to as "underlying funds"). Although the Fund's primary exposure is to foreign and U.S. equity securities (including emerging country equities, both growth and value style equities, and equities of any market capitalization), the Fund also may have exposure to foreign and U.S. fixed income securities (including fixed income securities of any credit quality and having any maturity or duration), the investment returns of commodities and, from time to time, other a lternative asset classes. Under normal circumstances, the Fund invests at least 80% of its assets in equity investments (which include common stocks and other stock-related securities, such as preferred stocks, convertible securities, and depository receipts). The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and other cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury 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. As of August 31, 2009, shares of GMO Flexible Equities Fund were 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


7


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 generally 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 47.22% of the net assets of the Fund, through investments in the underlying funds, were valued using fair value prices based on models used by that third party vendor. Those underlying funds classify such securities under SFAS 157 (as defined below) as Level 2.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.


8


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Mutual Funds   $ 935,192,019     $ 21,288,327     $ —     $ 956,480,346    
Short-Term Investments     31,838       —       —       31,838    
Total   $ 935,223,857     $ 21,288,327     $ —     $ 956,512,184    

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (both direct and indirect) in securities using Level 3 inputs was less than 0.01% of total net assets.

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 carryforwards 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.


9


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $17,086,019.

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 1,264,708,148     $ 3,564,005     $ (311,759,969 )   $ (308,195,964 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. 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 uses the identified cost basis for the purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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 World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

For the six-month period ended August 31, 2009, the premium on cash purchases and the fee on cash redemptions were each 0.04% of the amount invested or redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager may consider known cash flows out of or into other series of the Trust when placing orders for the cash purchase or redemption of shares by the Fund shareholders or other prospective or existing shareholders of the Funds for whom GMO provides asset allocation advice. Consequently, the Fund and those other shareholders for whom GMO provides asset allocation advice will tend to benefit from waivers of the Funds' purchase premiums and redemption fees to a greater extent than other prospective and existing shareholders of the other series of the Trust. All or a portion of the Fund's purchase premium and/or redemption fees may be waived at the Manager's discretion when they are de minimis and/or the Manager deems it equitable to do so, including without limitation when the weighted average of (i) the estimated transaction costs for directly held assets and (ii) the purchase premium and/or redemption fees, if any, imposed by the underlying funds are less than the purchase premium and/or redemption fee imposed by the Fund. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of a Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders a re received.


11


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund, including those risks to which the Fund is exposed as a result of its investments in the underlying funds. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities held by underlying funds may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund and its underlying funds generally seek to be fully invested and normally do not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's and the underlying funds' investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. An underlying fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent an underlying fund from selling securities or closing derivative positions at desirable prices.

• Derivatives Risk — The use of derivatives by underlying funds involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in the underlying funds, including the risk that the underlying funds in which it invests will not perform as expected. Because the Fund bears the fees and expenses of the underlying funds in which it invests, investments in underlying funds with higher fees or expenses than the underlying funds in which the Fund is invested will increase the Fund's total expenses. The fees and expenses associated with an investment in the Fund are less predictable and may potentially be higher than fees and expenses associated with an investment in funds that charge a fixed management fee.


12


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Market Risk — Fixed Income Securities — Typically, the value of an underlying fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

Other principal risks of an investment in the Fund include Smaller Company Risk (greater market risk and liquidity risk resulting from investments by an underlying fund in companies with smaller market capitalizations), Commodities Risk (value of an underlying fund's shares may be affected by factors particular to the commodities markets and may fluctuate more than the share value of a fund with a broader range of investments), Currency Risk (risk that fluctuations in exchange rates m ay adversely affect the value of an underlying fund's investments denominated in foreign currencies or that the U.S. dollar will decline in value relative to a foreign currency being hedged by an underlying fund), Leveraging Risk (increased risks from use of reverse repurchase agreements and other derivatives and securities lending by an underlying fund), Credit and Counterparty Risk (risk of default of an issuer of a portfolio security or a derivatives counterparty of an underlying fund or a borrower of an underlying fund's securities), Real Estate Risk (risk to an underlying fund that concentrates its assets in real estate-related investments that factors affecting the real estate industry may cause the value of the underlying fund's investments to fluctuate more than if it invested in securities of companies in a broader range of industries), Short Sales Risk (risk that an underlying fund's loss on the short sale of securities that it does not own is unlimited), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). Some of the underlying funds are non-diversified investment companies under the 1940 Act, and therefore a decline in the market value of a particular security held by those funds may affect their performance more than if they were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.


13


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

3.  Fees and other transactions with affiliates

The Manager decides how to allocate the assets of the Fund among underlying funds. The Manager does not charge the Fund a management fee or shareholder service fee, but it receives management and shareholder service fees from the underlying funds in which the Fund invests. Because those fees vary from fund to fund, the levels of indirect net expenses set forth below are affected by the Manager's asset allocation decisions.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.00% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) or would be an investment co mpany 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, 2009, 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		  
  0.408 %     0.070 %     0.478 %  

 

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, 2009 was $6,273 and $3,680, respectively. The compensation and expenses of the CCO are included in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $98,325,087 and $65,033,308, respectively.


14


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 10.59% 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.

As of August 31, 2009, less than 0.01% of the Fund's shares were held senior management of the Manager and GMO Trust officers and 9.19% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     4,709,319     $ 69,085,850       21,444,708     $ 386,255,390    
Shares issued to shareholders in
reinvestment of distributions		     —       —       4,310,232       76,196,861    
Shares repurchased     (3,201,957 )     (48,578,239 )     (12,427,876 )     (205,630,443 )  
Purchase premiums     —       —       —       147,229    
Redemption fees     —       —       —       60,266    
Net increase (decrease)     1,507,362     $ 20,507,611       13,327,064     $ 257,029,303    

 


15


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 is set forth below:

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value, end
of period		  
GMO Flexible Equities
Fund, Class VI		   $ 14,631,268     $ 2,212,702     $ 529,688     $ —     $ —     $ 21,288,327    
GMO International
Growth Equity Fund,
Class IV		     146,275,269       23,096,561       17,716,191       4,854,807       —       200,485,859    
GMO International
Intrinsic Value Fund,
Class IV		     140,086,040       18,756,571       17,961,102       2,510,767       —       207,875,288    
GMO International Small
Companies Fund,
Class III		     —       16,611,749       —       60,792       —       18,217,962    
GMO Quality Fund,
Class VI		     275,208,643       27,684,460       20,376,753       3,729,667       —       349,808,111    
GMO U.S. Core Equity
Fund, Class VI		     122,343,703       9,963,044       8,449,574       1,649,193       —       158,804,799    
Totals   $ 698,544,923     $ 98,325,087     $ 65,033,308     $ 12,805,226     $ —     $ 956,480,346    

 

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. Effective September 14, 2009, the premium on cash purchases was 0.00% of the amount invested and the fee on cash redemptions was 0.00% of the amount redeemed.


16



GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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


17


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 (including the effect of recent market events and changes in assets under management and revenues on such profitability); 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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 World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


19


GMO World Opportunities Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.48 %   $ 1,000.00     $ 1,334.40     $ 2.82    
2) Hypothetical     0.48 %   $ 1,000.00     $ 1,022.79     $ 2.45    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, 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 Alpha Only Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     86.6 %  
Cash and Cash Equivalents     70.9    
Short-Term Investments     7.1    
Preferred Stocks     0.0    
Rights and Warrants     0.0    
Forward Currency Contracts     (0.1 )  
Swaps     (28.9 )  
Futures     (52.1 )  
Other     16.5    
      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, 2009 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        MUTUAL FUNDS — 93.0%  
        United States — 93.0%  
        Affiliated Issuers  
    14,212,745     GMO International Growth Equity Fund, Class IV     272,174,076    
    13,221,980     GMO International Intrinsic Value Fund, Class IV     271,976,138    
    1,995,286     GMO International Small Companies Fund, Class III     13,727,571    
    20,380,503     GMO Quality Fund, Class VI     358,493,048    
    20,187,482     GMO U.S. Core Equity Fund, Class VI     197,433,573    
    1,400,129     GMO U.S. Treasury Fund     35,017,216    
    Total United States     1,148,821,622    
    TOTAL MUTUAL FUNDS (COST $1,021,009,573)     1,148,821,622    
        SHORT-TERM INVESTMENTS — 2.0%  
    62,152     Bank of Ireland Time Deposit, 0.03%, due 09/01/09     62,152    
    24,200,000     HSBC Bank (USA) Time Deposit, 0.13%, due 09/01/09     24,200,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $24,262,152)     24,262,152    
          TOTAL INVESTMENTS — 95.0%
(Cost $1,045,271,725)		     1,173,083,774    
          Other Assets and Liabilities (net) — 5.0%     61,794,951    
    TOTAL NET ASSETS — 100.0%   $ 1,234,878,725    

 

See accompanying notes to the financial statements.


2


GMO Alpha Only Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys †   
10/23/09   AUD     386,000     $ 324,914     $ 1,760    
10/23/09   DKK     47,353,830       9,110,861       134,428    
10/23/09   EUR     3,484,000       4,994,774       6,035    
10/23/09   EUR     12,694,008       18,198,538       301,624    
10/23/09   NOK     34,153,159       5,667,032       112,993    
10/23/09   SEK     127,015,741       17,847,005       275,241    
10/23/09   SEK     37,968,000       5,334,891       (69,986 )  
    $ 61,478,015     $ 762,095    
Sales #   
10/23/09   AUD     18,393,469     $ 15,482,627     $ (418,376 )  
10/23/09   AUD     18,393,469       15,482,627       (401,086 )  
10/23/09   AUD     15,238,000       12,826,524       (317,543 )  
10/23/09   CHF     14,689,900       13,879,294       (266,241 )  
10/23/09   CHF     11,803,000       11,151,696       (65,216 )  
10/23/09   EUR     19,537,000       28,008,871       (209,381 )  
10/23/09   GBP     12,219,709       19,891,472       197,486    
10/23/09   GBP     12,219,709       19,891,472       302,172    
10/23/09   GBP     14,073,000       22,908,293       308,132    
10/23/09   HKD     30,878,000       3,985,654       (265 )  
10/23/09   HKD     74,097,248       9,564,286       525    
10/23/09   JPY     2,770,060,000       29,780,237       (245,217 )  
10/23/09   JPY     2,349,722,580       25,261,292       (450,431 )  
10/23/09   JPY     2,349,722,580       25,261,292       (458,183 )  
10/23/09   JPY     2,349,722,580       25,261,293       (425,282 )  
10/23/09   JPY     2,349,722,580       25,261,293       (445,085 )  
10/23/09   NZD     598,268       409,220       (9,009 )  
10/23/09   SGD     7,685,463       5,331,011       (35,312 )  
10/23/09   SGD     3,325,000       2,306,382       (13,819 )  
    $ 311,944,836     $ (2,952,131 )  

 

†  Fund buys foreign currency; sells USD.

#  Fund sells foreign currency; buys USD.

See accompanying notes to the financial statements.


3


GMO Alpha Only Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  119     Amsterdam Exchanges   September 2009   $ 10,139,607     $ 469,861    
  93     DAX   September 2009     18,257,799       1,466,651    
  49     IBEX 35   September 2009     7,996,157       506,099    
  1,548     OMXS 30   September 2009     19,739,390       851,706    
    $ 56,132,953     $ 3,294,317    
Sales      
  441     CAC 40   September 2009   $ 23,164,980     $ (1,508,777 )  
  835     FTSE 100   September 2009     66,378,200       (5,886,290 )  
  104     Hang Seng   September 2009     13,171,046       543,136    
  179     MSCI Singapore   September 2009     7,781,869       88,938    
  5,553     S&P 500 E-Mini Index   September 2009     283,133,587       (14,353,421 )  
  107     S&P/MIB   September 2009     17,269,450       (2,012,613 )  
  476     SPI 200   September 2009     44,922,686       (4,611,043 )  
  1,288     TOPIX   September 2009     132,914,689       (4,291,055 )  
    $ 588,736,507     $ (32,031,125 )  

 

Swap Agreements

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Fund Pays   Fund Receives   Market
Value		  
  96,053,920     USD   1/11/2010   Morgan Stanley   Custom Low   Daily Federal Funds    
   
                    Quality Equity Basket   Rate -0.52%   $ (56,780,011 )  
  57,246,978     USD   2/3/2010   Goldman Sachs   Custom Low
Quality Equity Basket		   Daily Federal Funds
Rate -0.80%		     (37,936,661 )  
  154,123,854     USD   8/9/2010   Citigroup   Custom Low
Quality Equity Basket		   3 month
LIBOR -0.90%		     (2,033,724 )  
  49,659,736     USD   8/9/2010   JP Morgan Chase
Bank		   Custom Low
Quality Equity Basket		   3 month
LIBOR -1.35%		     (494,364 )  
                            $ (97,244,760 )  
                        Premiums to (Pay) Receive   $ —    

 

As of August 31, 2009, 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 Alpha Only Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Notes to Schedule of Investments:

LIBOR - London Interbank Offered Rate

Currency Abbreviations:

AUD - Australian Dollar

CHF - Swiss Franc

DKK - Danish Krone

EUR - Euro

GBP - British Pound

HKD - Hong Kong Dollar

JPY - Japanese Yen

NOK - Norwegian Krone

NZD - New Zealand Dollar

SEK - Swedish Krona

SGD - Singapore Dollar

USD - United States Dollar

See accompanying notes to the financial statements.


5



GMO Alpha Only Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $24,262,152) (Note 2)   $ 24,262,152    
Investments in affiliated issuers, at value (cost $1,021,009,573) (Notes 2 and 8)     1,148,821,622    
Foreign currency, at value (cost $735,871) (Note 2)     735,871    
Receivable for investments sold     34,700,000    
Dividends and interest receivable     657    
Unrealized appreciation on open forward currency contracts (Note 2)     1,640,396    
Receivable for collateral on open futures contracts (Note 2)     50,936,000    
Receivable for variation margin on open futures contracts (Note 2)     3,327,992    
Receivable for collateral on open swap contracts (Note 2)     96,885,576    
Receivable for expenses reimbursed by Manager (Note 3)     434,000    
Total assets     1,361,744,266    
Liabilities:  
Payable for Fund shares repurchased     25,000,000    
Payable to affiliate for (Note 3):  
Management fee     473,874    
Shareholder service fee     98,699    
Trustees and Chief Compliance Officer of GMO Trust fees     3,848    
Unrealized depreciation on open forward currency contracts (Note 2)     3,830,432    
Payable for open swap contracts (Note 2)     97,244,760    
Accrued expenses     213,928    
Total liabilities     126,865,541    
Net assets   $ 1,234,878,725    
Net assets consist of:  
Paid-in capital   $ 2,331,995,431    
Distributions in excess of net investment income     (13,924,335 )  
Accumulated net realized loss     (1,082,832,816 )  
Net unrealized depreciation     (359,555 )  
    $ 1,234,878,725    
Net assets attributable to:  
Class III shares   $ 96,434,673    
Class IV shares   $ 1,138,444,052    
Shares outstanding:  
Class III     19,379,232    
Class IV     228,768,412    
Net asset value per share:  
Class III   $ 4.98    
Class IV   $ 4.98    

 

See accompanying notes to the financial statements.


6


GMO Alpha Only Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 13,130,093    
Interest     70,928    
Total investment income     13,201,021    
Expenses:  
Management fee (Note 3)     2,606,539    
Shareholder service fee – Class III (Note 3)     71,319    
Shareholder service fee – Class IV (Note 3)     473,761    
Custodian and fund accounting agent fees     128,576    
Legal fees     43,056    
Audit and tax fees     35,236    
Transfer agent fees     21,160    
Trustees fees and related expenses (Note 3)     13,843    
Registration fees     3,588    
Miscellaneous     11,592    
Total expenses     3,408,670    
Fees and expenses reimbursed by Manager (Note 3)     (219,196 )  
Expense reductions (Note 2)     (189 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (1,786,734 )  
Shareholder service fee waived (Note 3)     (315,530 )  
Net expenses     1,087,021    
Net investment income (loss)     12,114,000    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (542,422,735 )  
Closed futures contracts     33,089,321    
Closed swap contracts     8,233,163    
Foreign currency, forward contracts and foreign currency related transactions     5,746,162    
Net realized gain (loss)     (495,354,089 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     722,985,548    
Open futures contracts     (110,187,522 )  
Open swap contracts     (204,277,005 )  
Foreign currency, forward contracts and foreign currency related transactions     (10,913,897 )  
Net unrealized gain (loss)     397,607,124    
Net realized and unrealized gain (loss)     (97,746,965 )  
Net increase (decrease) in net assets resulting from operations   $ (85,632,965 )  

 

See accompanying notes to the financial statements.


7


GMO Alpha Only Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 12,114,000     $ 67,634,088    
Net realized gain (loss)     (495,354,089 )     630,224,954    
Change in net unrealized appreciation (depreciation)     397,607,124       (332,733,684 )  
Net increase (decrease) in net assets from operations     (85,632,965 )     365,125,358    
Distributions to shareholders from:  
Net investment income  
Class III     (6,172,043 )     (57,987,423 )  
Class IV     (87,315,114 )     (869,600,332 )  
Total distributions from net investment income     (93,487,157 )     (927,587,755 )  
Net realized gains  
Class III     —       (30,565,835 )  
Class IV     —       (445,995,777 )  
Total distributions from net realized gains     —       (476,561,612 )  
      (93,487,157 )     (1,404,149,367 )  
Net share transactions (Note 7):  
Class III     (10,555,381 )     7,583,957    
Class IV     (551,310,024 )     272,747,018    
Increase (decrease) in net assets resulting from net share
transactions		     (561,865,405 )     280,330,975    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     —       73,187    
Class IV     —       447,577    
Increase in net assets resulting from purchase premiums
and redemption fees		     —       520,764    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (561,865,405 )     280,851,739    
Total increase (decrease) in net assets     (740,985,527 )     (758,172,270 )  
Net assets:  
Beginning of period     1,975,864,252       2,734,036,522    
End of period (including distributions in excess of net investment
income of $13,924,335 and accumulated undistributed net
investment income of $67,448,822, respectively)		   $ 1,234,878,725     $ 1,975,864,252    

 

See accompanying notes to the financial statements.


8



GMO Alpha Only Fund

(A Series of GMO Trust)

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

    Six Months
Ended
August 31, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 5.77     $ 11.11     $ 10.42     $ 10.36     $ 10.26     $ 9.99    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.06       0.23       0.21       0.17       0.16       0.19    
Net realized and unrealized gain
(loss)		     (0.55 )     0.93       0.70       0.10       0.31       0.08    
Total from investment
operations		     (0.49 )     1.16       0.91       0.27       0.47       0.27    
Less distributions to shareholders:  
From net investment income     (0.30 )     (4.41 )     (0.22 )     (0.21 )     (0.37 )     —    
From net realized gains     —       (2.09 )     —       —       —       —    
Total distributions     (0.30 )     (6.50 )     (0.22 )     (0.21 )     (0.37 )     —    
Net asset value, end of period   $ 4.98     $ 5.77     $ 11.11     $ 10.42     $ 10.36     $ 10.26    
Total Return(b)      (9.03 )%**      11.92 %     8.74 %     2.64 %     4.63 %     2.70 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 96,435     $ 121,711     $ 176,067     $ 166,626     $ 1,460,161     $ 179,488    
Net expenses to average daily
net assets(c) 		     0.25 %(d)*      0.23 %(d)      0.16 %(d)      0.15 %     0.10 %     0.18 %  
Net investment income to average
daily net assets(a) 		     2.45 %*      2.37 %     1.91 %     1.66 %     1.52 %     1.94 %  
Portfolio turnover rate     49 %**      87 %     44 %     22 %     40 %     19 %  
Fees and expenses reimbursed
and/or waived by the Manager to
average daily net assets:		     0.45 %*      0.44 %     0.51 %     0.53 %     0.59 %     0.62 %  
Redemption fees consisted of the
following per share amounts:† 		   $ 0.00 (e)    $ 0.00 (f)    $ 0.01     $ 0.01     $ 0.02     $ 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)  There were no redemption fees during the period.

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

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


9


GMO Alpha Only Fund

(A Series of GMO Trust)

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

    Six Months
Ended
August 31, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007(a)   
Net asset value, beginning of period   $ 5.77     $ 11.11     $ 10.41     $ 10.37    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.06       0.24       0.21       0.20    
Net realized and unrealized gain (loss)     (0.55 )     0.92       0.71       0.06    
Total from investment operations     (0.49 )     1.16       0.92       0.26    
Less distributions to shareholders:  
From net investment income     (0.30 )     (4.41 )     (0.22 )     (0.22 )  
From net realized gains     —       (2.09 )     —       —    
Total distributions     (0.30 )     (6.50 )     (0.22 )     (0.22 )  
Net asset value, end of period   $ 4.98     $ 5.77     $ 11.11     $ 10.41    
Total Return(c)      (9.02 )%**      12.00 %     8.90 %     2.54 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,138,444     $ 1,854,153     $ 2,557,970     $ 1,693,793    
Net expenses to average daily net assets(d)      0.20 %(e)*      0.18 %(e)      0.11 %(e)      0.10 %*   
Net investment income to average daily net assets(b)      2.31 %*      2.52 %     1.96 %     1.93 %*   
Portfolio turnover rate     49 %**      87 %     44 %     22 %††   
Fees and expenses reimbursed and/or waived by the
Manager to average daily net assets:		     0.44 %*      0.44 %     0.51 %     0.53 %*   
Redemption fees consisted of the following per share
amounts:† 		   $ 0.00 (f)    $ 0.00 (g)    $ 0.01     $ 0.00 (g)   

 

(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)  There were no redemption fees during the period.

(g)  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.


10



GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Alpha Only Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the Citigroup 3 Month Treasury Bill Index. The Fund invests in shares of the GMO U.S. Equity Funds and the GMO International Equity Funds, and also may invest in shares of GMO Emerging Country Debt Fund ("ECDF") and GMO Flexible Equities Fund (the GMO Funds in which the Fund invests are collectively referred to as "underlying funds"). In addition, the Fund may invest in securities. The Fund implements its strategy with investments in a combination of U.S., foreign, and emerging country equities and emerging country debt. The Manager seeks to hedge some or all of the broad market exposure of the underlying funds and assets in which the Fund invests by using futures, swap contracts, and currency forwards and by making short sales of securities (e.g., shares of an exchange-traded fund). To the extent that the Fund's hedges are effective, the performance of the Fund's portfolio is expected to have a low correlation to the performance of the underlying funds and assets in which the Fund invests. Instead, the Fund's performance is expected to approximate the performance of the underlying funds and assets in which the Fund invests relative to the broader securities markets. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and other cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective.

Throughout the period ended August 31, 2009, the Fund had two classes of shares outstanding: Class III and Class IV. Each class of shares bears a different shareholder service fee.

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


11


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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

Shares of the underlying funds and other mutual funds are generally 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the creditworthiness of a counterparty. 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 as of the NYSE close using fair value prices, which are based on adjust ments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 44.79% 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. Those underlying funds classify such securities under SFAS 157 (as defined below) as Level 2.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.


12


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Mutual Funds  
United States   $ 1,148,821,622     $ —     $ —     $ 1,148,821,622    
Short-Term Investments     24,262,152       —       —       24,262,152    
Total Investments     1,173,083,774       —       —       1,173,083,774    
Derivatives  
Forward Currency Contracts     —       1,640,396       —       1,640,396    
Futures Contracts     —       3,926,391       —       3,926,391    
Total   $ 1,173,083,774     $ 5,566,787     $ —     $ 1,178,650,561    

 

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Derivatives  
Forward Currency Contracts   $ —     $ (3,830,432 )   $ —     $ (3,830,432 )  
Futures Contracts     (14,353,421 )     (18,309,778 )     —       (32,663,199 )  
Swap Agreements     —       (97,244,760 )     —       (97,244,760 )  
Total   $ (14,353,421 )   $ (119,384,970 )   $ —     $ (133,738,391 )  

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's indirect investments in securities using Level 3 inputs was less than 0.01% of total net assets.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, whose fair value was determined using Level 3 inputs.


13


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. 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. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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


14


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

effectively preventing liquidation of unfavorable positions. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign futures on those exchanges do not reflect events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign futures using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor based on that vendor's proprietary models. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.


15


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exp osure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the


16


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to make a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for certain swap contracts in those markets or on 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 certain swap contracts using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor based on that vendor's proprietary models. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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


17


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 carryforwards 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $96,558,266.

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 1,450,426,293       —     $ (277,342,519 )   $ (277,342,519 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of the statute of limitations by U.S. federal and state tax authorities for tax returns filed.


18


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the trade date in the financial statements and usually one business day following the trade date in the daily net asset value calculations. 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 uses the identified cost basis for the purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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 incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

During the six month period ended August 31, 2009, the Fund did not charge a premium on cash purchases or fee on cash redemptions of the amount invested or redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager may consider known cash flows out of or into other series of the Trust when placing orders for the cash purchase or redemptio n of shares by the Fund shareholders or other prospective or existing shareholders of the Funds for whom GMO provides asset allocation advice. Consequently, the Fund and those other shareholders for whom GMO provides asset allocation advice will tend to benefit from waivers of the Funds' purchase premiums and redemption fees to a greater extent than other prospective and existing shareholders of the other series of the Trust. All or a portion of the Fund's purchase premiums and/or redemption fees may be waived at the Manager's discretion when they are de minimis and/or the


19


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Manager deems it equitable to do so, including without limitation when the weighted average of (i) the estimated transaction costs for directly held assets and (ii) the purchase premiums and/or redemption fees, if any, imposed by the underlying funds are less than the purchase premiums and/or redemption fees imposed by the Fund. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of a Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund, including those risks to which the Fund is exposed as a result of its investments in the underlying funds. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities held by the Fund or underlying funds may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. The Manager attempts to offset the movement of the equity markets by establishing hedging positions, but there is no guarantee that the hedging positions will produce the desired results. In addition, as a result of the Fund's hedging positions, the value of the Fund's shares will be adversely affected if the return on the Fund's equity positions is lower than the returns that are the subject of the Fund's hedging positions.

• Derivatives Risk — The use of derivatives by the Fund or underlying funds involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset. This risk is particularly pronounced because the Fund uses various types of exchange-traded and over-the counter derivatives to attempt to implement its investment strategy.


20


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. .markets. The Fund or an underlying fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are g reater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund or an underlying fund from selling securities or closing derivative positions at desirable prices.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in the underlying funds, including the risk that the underlying funds in which it invests will not perform as expected.

• Market Risk — Fixed Income Securities — Typically, the value of an underlying fund's fixed income securities will decline during periods of rising interest rates and widening credit spreads on asset-backed securities. Recent market events caused credit spreads for asset-backed and other fixed income securities to widen dramatically and contributed to substantial declines in their value. There can be no assurance these conditions will not continue or that they will not deteriorate further.

• Leveraging Risk — The use of reverse repurchase agreements and other derivatives may cause the Fund's portfolio to be leveraged. Because the Fund and some underlying funds are not limited in the extent to which they may use derivatives or in the absolute face value of their derivative positions, the Fund may be leveraged in relation to its assets. Leverage increases the Fund's portfolio losses and reduces opportunities for gain when interest rates or currency rates are changing.

Other principal risks of an investment in the Fund include Currency Risk (risk that fluctuations in exchange rates may adversely affect the value of the Fund's or an underlying fund's investments denominated in foreign currencies, or that the U.S. dollar will decline in value relative to the foreign currency being hedged by the Fund or an underlying fund), Credit and Counterparty Risk (risk of default of an issuer of a portfolio security or derivatives counterparty of the Fund or of an underlying fund or a borrower of the Fund's or an underlying fund's securities), Real Estate Risk (risk to an underlying fund that concentrates its assets in real estate-related investments that factors affecting the real estate industry may cause the value of the underlying fund's investments to fluctuate more than if it invested in securities of companies in a broader range of industries), Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investment by the Fund or an underlying fund in companies with smaller market capitalizations), and Short Sales Risk (risk that the Fund's loss on a short sale of securities that the Fund does not own is unlimited), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that


21


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). The Fund and some of the underlying funds are non-diversified investment companies under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund or an underlying fund may affect the Fund's or the underlying fund's performance more than if the Fund or the underlying fund were diversified. Certain of the above referenced risks are more pronounced for the Fund as a result of its investment in ECDF.

Among other trading agreements, the Fund is party to International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Agreements") with select counterparties that generally govern over-the-counter derivative transactions entered into by the Fund. The ISDA Master Agreements typically include standard representations and warranties as well as contractual terms related to collateral, events of default, termination events, and other standard provisions. Termination events include the decline in the net assets of the Fund below a certain level over a specified period of time and entitles a counterparty to elect to terminate early with respect to some or all the transactions under the ISDA Agreement with that counterparty. Such an election by one or more of the counterparties could have a material impact on the Fund's operations. Due to declines in the net assets of the Fund during the period ended August 31, 2009, one o r more counterparties are entitled to terminate early but none has taken such action.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Manager seeks to hedge some or all of the broad market exposure of the underlying GMO Trust Funds and other assets in which the Fund invests by using futures, swap contracts, and currency forwards and by making short sales of securities (e.g., shares of an exchange-traded fund).

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms


22


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

(e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictability of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.


23


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options, rights and warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts*		     —       —       —       3,926,391       —       3,926,391    
Unrealized appreciation on
forward currency contracts		     —       1,640,396       —       —       —       1,640,396    
Unrealized appreciation on
swap agreements		     —       —       —       —       —       —    
Total   $ —     $ 1,640,396     $ —     $ 3,926,391     $ —     $ 5,566,787    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts*		     —       —       —       (32,663,199 )     —       (32,663,199 )  
Unrealized depreciation on
forward currency contracts		     —       (3,830,432 )     —       —       —       (3,830,432 )  
Unrealized depreciation on
swap agreements		     —       —       —       (97,244,760 )     —       (97,244,760 )  
Total   $ —     $ (3,830,432 )   $ —     $ (129,907,959 )   $ —     $ (133,738,391 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


24


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options,
rights and warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       33,089,321       —       33,089,321    
Swap contracts     —       —       —       8,233,163       —       8,233,163    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       1,266,694       —       —       —       1,266,694    
Total   $ —     $ 1,266,694     $ —     $ 41,322,484     $ —     $ 42,589,178    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options,
rights and warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       (110,187,522 )     —       (110,187,522 )  
Swap contracts     —       —       —       (204,277,005 )     —       (204,277,005 )  
Written options     —       —       —       —       —       —    
Forward currency contracts     —       (10,913,897 )     —       —       —       (10,913,897 )  
Total   $ —     $ (10,913,897 )   $ —     $ (314,464,527 )   $ —     $ (325,378,424 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Futures   Swaps  
Average notional amount outstanding   $ 418,837,539     $ 458,039,281     $ 420,598,751    
Highest notional amount outstanding     959,183,224       714,255,026       715,669,901    
Lowest notional amount outstanding     186,621,680       329,424,622       357,084,488    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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


25


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 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 expenses incurred by the Fund through at least June 30, 2010 to the extent that the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.50% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fun d) 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, 2010 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 direct or indirect 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.

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2009, 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  
  0.345 %     0.060 %     0.405 %  

 

      

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, 2009 was $11,175 and $6,900, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.


26


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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, 2009 aggregated $468,532,633 and $946,567,540, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 75.62% 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.

As of August 31, 2009, 1.47% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 97.18% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     7,479,119     $ 38,649,530       10,891,534     $ 107,005,790    
Shares issued to shareholders
in reinvestment of distributions		     962,240       5,306,700       10,963,624       75,954,352    
Shares repurchased     (10,145,613 )     (54,511,611 )     (16,617,931 )     (175,376,185 )  
Purchase premiums     —       —       —       65,115    
Redemption fees     —       —       —       8,072    
Net increase (decrease)     (1,704,254 )   $ (10,555,381 )     5,237,227     $ 7,657,144    

 


27


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     80,772,075     $ 407,916,245       81,138,618     $ 775,605,728    
Shares issued to shareholders
in reinvestment of distributions		     15,779,561       87,315,114       192,685,490       1,315,596,109    
Shares repurchased     (189,007,069 )     (1,046,541,383 )     (182,907,526 )     (1,818,454,819 )  
Purchase premiums     —       —       —       404,109    
Redemption fees     —       —       —       43,468    
Net increase (decrease)     (92,455,433 )   $ (551,310,024 )     90,916,582     $ 273,194,595    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 368,331,113     $ 76,404,449     $ 216,483,770     $ 5,544,449     $ —     $ 272,174,076    
GMO International
Intrinsic Value
Fund, Class IV		     354,875,492       80,088,564       227,633,770       2,888,564       —       271,976,138    
GMO International
Small Companies
Fund, Class III		     —       16,729,839       4,600,000       62,299       —       13,727,571    
GMO Quality Fund,
Class VI		     467,659,107       125,369,517       276,250,000       2,969,517       —       358,493,048    
GMO U.S. Core
Equity Fund,
Class VI		     255,428,005       59,911,054       146,600,000       1,636,053       —       197,433,573    
GMO U.S.
Treasury Fund		     —       110,029,210       75,000,000       29,211       —       35,017,216    
Totals   $ 1,446,293,717     $ 468,532,633     $ 946,567,540     $ 13,130,093     $ —     $ 1,148,821,622    

 


28


GMO Alpha Only Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


29



GMO Alpha Only Fund

(A Series of GMO Trust)

Board Review of Investments Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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 the Fund's performance relative to its benchmark than to the peer group 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.


30


GMO Alpha Only Fund

(A Series of GMO Trust)

Board Review of Investments Management Agreement — (Continued)
August 31, 2009 (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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trust ees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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. The Trustees noted 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 of the underlying funds 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.


31


GMO Alpha Only Fund

(A Series of GMO Trust)

Board Review of Investments Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


32


GMO Alpha Only Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     $ 909.70     $ 3.18    
2) Hypothetical     0.66 %   $ 1,000.00     $ 1,021.88     $ 3.36    
Class IV      
1) Actual     0.61 %   $ 1,000.00     $ 909.80     $ 2.94    
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, 2009, 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 Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     92.4 %  
Short-Term Investments     7.0    
Options Purchased     2.5    
Swaps     0.8    
Loan Participations     0.2    
Loan Assignments     0.1    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Forward Currency Contracts     0.0    
Futures     (0.3 )  
Written Options     (0.8 )  
Reverse Repurchase Agreements     (2.8 )  
Other     0.9    
      100.0 %  
Country / Region Summary**   % of Investments  
United States     99.7 %  
United Kingdom     5.5    
Euro Region***     4.6    
Emerging****     4.6    
Australia     1.8    
Canada     1.5    
Sweden     0.5    
Japan     (18.2 )  
      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 table is based on duration adjusted exposures, taking into account the market value of securities and the notional amounts of swaps and other derivative contracts. Duration is based on the Manager's models. The greater the duration of a bond, the greater its contribution to the concentration percentage. Credit default swap exposures (both positive and negative) are factored into the duration-adjusted exposure using the reference security and applying the same methodology to that security.

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

****  The "Emerging" exposure is associated with investments in the GMO Emerging Country Debt Fund, which is exposed to emerging countries primarily comprised of Russia, Argentina, Brazil, Philippines, Mexico, Venezuela, Colombia, Uruguay, Turkey, and Indonesia. Additional information about the fund's emerging country exposure is available in the financial statements of the GMO Emerging Country Debt Fund.


1



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($) /
Shares		   Description   Value ($)  
        DEBT OBLIGATIONS — 16.1%  
        U.S. Government — 16.1%  
    7,605,080     U.S. Treasury Inflation Indexed Note, 2.00%, due 01/15/16 (a)      7,740,542    
    5,021,750     U.S. Treasury Inflation Indexed Bond, 2.13%, due 01/15/19 (a)      5,173,969    
    11,439,700     U.S. Treasury Inflation Indexed Bond, 2.38%, due 01/15/25 (a)      11,689,943    
    10,864,400     U.S. Treasury Inflation Indexed Bond, 2.00%, due 01/15/26 (a)      10,555,438    
    10,807,650     U.S. Treasury Inflation Indexed Bond, 1.75%, due 01/15/28 (a)      10,067,996    
    4,332,933     U.S. Treasury Inflation Indexed Bond, 3.63%, due 04/15/28 (a) (b)      5,214,416    
    13,116,900     U.S. Treasury Inflation Indexed Bond, 3.88%, due 04/15/29 (a) (b)      16,424,825    
    Total U.S. Government     66,867,129    
    TOTAL DEBT OBLIGATIONS (COST $67,086,401)     66,867,129    
        MUTUAL FUNDS — 80.7%  
        Affiliated Issuers — 80.7%  
    2,065,631     GMO Emerging Country Debt Fund, Class III     15,905,358    
    13,970,321     GMO Short-Duration Collateral Fund     224,223,657    
    28,918     GMO Special Purpose Holding Fund (c)      18,219    
    510,981     GMO U.S. Treasury Fund     12,779,629    
    4,225,208     GMO World Opportunity Overlay Fund     81,800,023    
    TOTAL MUTUAL FUNDS (COST $368,365,172)     334,726,886    
        SHORT-TERM INVESTMENTS — 1.7%  
        Money Market Funds — 1.6%  
    6,815,234     State Street Institutional Treasury Plus Money Market Fund-Institutional Class     6,815,234    
        Other Short-Term Investments — 0.1%  
    300,000     U.S. Treasury Bill, 0.28%, due 05/06/10 (b) (d)      299,440    
    TOTAL SHORT-TERM INVESTMENTS (COST $7,114,186)     7,114,674    
          TOTAL INVESTMENTS — 98.5%
(Cost $442,565,759)		     408,708,689    
          Other Assets and Liabilities (net) — 1.5%     6,238,835    
    TOTAL NET ASSETS — 100.0%   $ 414,947,524    

 

See accompanying notes to the financial statements.


2


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  23     Australian Government Bond 10 Yr.   September 2009   $ 2,029,534     $ 13,012    
  39     Australian Government Bond 3 Yr.   September 2009     3,375,685       (29,729 )  
  33     Canadian Government Bond 10 Yr.   December 2009     3,620,760       14,010    
  2     Euro BOBL   September 2009     333,764       1,085    
  4     Euro Bund   September 2009     703,921       7,049    
  4     U.S. Treasury Note 2 Yr. (CBT)   December 2009     865,375       1,928    
  6     U.S. Treasury Note 5 Yr. (CBT)   December 2009     691,500       2,988    
  48     UK Gilt Long Bond   December 2009     9,268,738       26,366    
    $ 20,889,277     $ 36,709    
Sales      
  4     U.S. Treasury Bond (CBT)   December 2009   $ 479,000     $ (2,621 )  
  104     U.S. Treasury Note 10 Yr. (CBT)   December 2009     12,190,750       (70,187 )  
  48     Japanese Government Bond 10 Yr. (TSE)   September 2009     71,990,882       (1,342,453 )  
    $ 84,660,632     $ (1,415,261 )  

 

Swap Agreements

Total Return Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Fund Pays   Fund Receives   Market
Value		  
  25,000,000     USD   4/15/2010   Barclays Bank PLC     (0.60 %)   CPURNSA Index (a)    $ 417,610    
  285,000,000     USD       10/14/2009   Barclays Bank PLC     0.50 %   Barclays TIPS Index
Total Return (a) 		     5,720,334    
                        $ 6,137,944    
                    Premiums to (Pay) Receive   $ —    

 

As of August 31, 2009, 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.


3


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Notes to Schedule of Investments:

CPURNSA - Consumer Price All Urban Non-Seasonally Adjusted

TIPS - Treasury Inflation Protected Securities

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

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

(c)  Underlying investment represents interests in defaulted securities.

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

Currency Abbreviations:

USD - United States Dollar

See accompanying notes to the financial statements.


4



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $74,200,587) (Note 2)   $ 73,981,803    
Investments in affiliated issuers, at value (cost $368,365,172) (Notes 2 and 8)     334,726,886    
Interest receivable     374,902    
Receivable for collateral on open futures contracts (Note 2)     74,158    
Receivable for open swap contracts (Note 2)     6,137,944    
Receivable for expenses reimbursed by Manager (Note 3)     26,515    
Total assets     415,322,208    
Liabilities:  
Payable to affiliate for (Note 3):  
Management fee     86,820    
Shareholder service fee     28,894    
Trustees and Chief Compliance Officer of GMO Trust fees     805    
Payable for variation margin on open futures contracts (Note 2)     173,630    
Accrued expenses     84,535    
Total liabilities     374,684    
Net assets   $ 414,947,524    
Net assets consist of:  
Paid-in capital   $ 526,883,521    
Distributions in excess of net investment income     (26,894,218 )  
Accumulated net realized loss     (55,952,869 )  
Net unrealized depreciation     (29,088,910 )  
    $ 414,947,524    
Net assets attributable to:  
Class III shares   $ 119,448,665    
Class VI shares   $ 295,498,859    
Shares outstanding:  
Class III     7,088,809    
Class VI     17,546,828    
Net asset value per share:  
Class III   $ 16.85    
Class VI   $ 16.84    

 

See accompanying notes to the financial statements.


5


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 2,083,822    
Interest     2,013,512    
Dividends     939    
Total investment income     4,098,273    
Expenses:  
Management fee (Note 3)     495,544    
Shareholder service fee – Class III (Note 3)     91,849    
Shareholder service fee – Class VI (Note 3)     75,342    
Custodian, fund accounting agent and transfer agent fees     83,168    
Audit and tax fees     34,316    
Legal fees     9,108    
Trustees fees and related expenses (Note 3)     4,027    
Registration fees     2,944    
Miscellaneous     3,680    
Total expenses     799,978    
Fees and expenses reimbursed by Manager (Note 3)     (128,984 )  
Indirectly incurred fees waived or borne by Manager (Note 3)     (28,212 )  
Shareholder service fee waived (Note 3)     (10,415 )  
Net expenses     632,367    
Net investment income (loss)     3,465,906    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     12,006    
Closed futures contracts     (21,570 )  
Closed swap contracts     4,804,900    
Foreign currency, forward contracts and foreign currency related transactions     (2,805 )  
Net realized gain (loss)     4,792,531    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     2,499,941    
Investments in affiliated issuers     47,251,682    
Open futures contracts     (1,378,552 )  
Open swap contracts     14,648,136    
Foreign currency, forward contracts and foreign currency related transactions     8,768    
Net unrealized gain (loss)     63,029,975    
Net realized and unrealized gain (loss)     67,822,506    
Net increase (decrease) in net assets resulting from operations   $ 71,288,412    

 

See accompanying notes to the financial statements.


6


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 3,465,906     $ 16,042,051    
Net realized gain (loss)     4,792,531       (22,061,546 )  
Change in net unrealized appreciation (depreciation)     63,029,975       (94,300,285 )  
Net increase (decrease) in net assets from operations     71,288,412       (100,319,780 )  
Distributions to shareholders from:  
Net investment income  
Class III     (4,651,370 )     (11,449,888 )  
Class VI     (10,387,052 )     (37,250,183 )  
Total distributions from net investment income     (15,038,422 )     (48,700,071 )  
Return of capital  
Class III     (2,365,409 )     —    
Class VI     (5,296,172 )     —    
Total distributions from return of capital     (7,661,581 )     —    
      (22,700,003 )     —    
Net share transactions (Note 7):  
Class III     (10,342,887 )     9,787,174    
Class VI     8,901,408       279,038,782    
Increase (decrease) in net assets resulting from net share
transactions		     (1,441,479 )     288,825,956    
Redemption fees (Notes 2 and 7):  
Class III     31,215       20,582    
Class VI     —       90,895    
Increase in net assets resulting from redemption fees     31,215       111,477    
Total increase (decrease) in net assets resulting from net share
transactions and redemption fees		     (1,410,264 )     288,937,433    
Total increase (decrease) in net assets     47,178,145       139,917,582    
Net assets:  
Beginning of period     367,769,379       227,851,797    
End of period (including distributions in excess of net investment
income of $26,894,218 and $15,321,702, respectively)		   $ 414,947,524     $ 367,769,379    

 

See accompanying notes to the financial statements.


7



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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007(a)   
Net asset value, beginning of period   $ 14.88     $ 23.52     $ 25.47     $ 24.96    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.14       0.82       1.13       0.75    
Net realized and unrealized gain (loss)     2.75       (6.90 )     (0.21 )     0.68    
Total from investment operations     2.89       (6.08 )     0.92       1.43    
Less distributions to shareholders:  
From net investment income     (0.61 )     (2.56 )     (2.81 )     (0.87 )  
From net realized gains     —       —       (0.06 )     (0.05 )  
Return of capital     (0.31 )     —       —       —    
Total distributions     (0.92 )     (2.56 )     (2.87 )     (0.92 )  
Net asset value, end of period   $ 16.85     $ 14.88     $ 23.52     $ 25.47    
Total Return(c)      19.85 %**      (26.89 )%     3.95 %     5.79 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 119,449     $ 114,859     $ 137,492     $ 260,205    
Net operating expenses to average daily net assets(e)      0.38 %*      0.39 %(d)      0.37 %(d)      0.39 %*   
Interest expense to average daily net assets     —       —       0.07 %     —    
Total net expenses to average daily net assets     0.38 %*      0.39 %(d)      0.44 %(d)      0.39 %*   
Net investment income to average daily net assets(b)      1.74 %*      4.17 %     4.51 %     4.37 %*   
Portfolio turnover rate     7 %**      56 %     131 %     37 %††   
Fees and expenses reimbursed and/or waived by the
Manager to average daily net assets:		     0.08 %*      0.11 %     0.06 %     0.06 %*   
Redemption fees consisted of the following per share
amounts:† 		   $ 0.00 (f)    $ 0.01       —       —    

 

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

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

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

(f)  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 period from May 31, 2006 (commencement of operations) through February 28, 2007.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


8


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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007(a)   
Net asset value, beginning of period   $ 14.87     $ 23.51     $ 25.48     $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)(b)†      0.14       1.37       1.38       0.83    
Net realized and unrealized gain (loss)     2.75       (7.43 )     (0.45 )     0.60    
Total from investment operations     2.89       (6.06 )     0.93       1.43    
Less distributions to shareholders:  
From net investment income     (0.61 )     (2.58 )     (2.84 )     (0.90 )  
From net realized gains     —       —       (0.06 )     (0.05 )  
Return of capital     (0.31 )     —       —       —    
Total distributions     (0.92 )     (2.58 )     (2.90 )     (0.95 )  
Net asset value, end of period   $ 16.84     $ 14.87     $ 23.51     $ 25.48    
Total Return(c)      19.90 %**      (26.82 )%     4.00 %     5.75 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 295,499     $ 252,911     $ 90,360     $ 1,874,841    
Net operating expenses to average daily net assets(d)      0.29 %*      0.30 %(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 %*      0.30 %(e)      0.36 %(e)      0.29 %*   
Net investment income to average daily net assets(b)      1.75 %*      7.73 %     5.48 %     4.33 %*   
Portfolio turnover rate     7 %**      56 %     131 %     37 %**   
Fees and expenses reimbursed and/or waived by the
Manager to average daily net assets:		     0.08 %*      0.09 %     0.06 %     0.06 %*   
Redemption fees consisted of the following per share
amounts:† 		   $ 0.00 (f)    $ 0.01       —       —    

 

(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. Calculation excludes 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)  There were no redemption fees during the period.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


9



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Inflation Indexed Plus Bond Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 Barclays Capital 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, sectors, and credit, currency, and emerging country debt markets. The Fund may implement its strategies: (i) synthetically by using exchange-traded and over-the-counter ("OTC") derivatives and investing in other series of the Trust and/or (ii) directly by purchasing inflation-indexed bonds. The Fund has historically gained its investment exposure primarily through the use of derivatives and investments in other series of the Trust. As a result, the Fund has substantial holdings of GMO Short-Duration Collateral Fund ("SDCF") (a Fund that invests primarily in asset-backed securities) and GMO World Opportunity Overlay Fund ("Overlay Fund") (a Fund that invests in asset-backed securities and uses derivatives to attempt to exploit misvaluations in world interest rates, currencies and credit markets). Under normal circumstances, the Fund invests (including through investment in other series of the Trust) at least 80% of its assets in inflation indexed bonds (which include instruments that are "linked" to general measures of inflation because their principal and/or interest components change with general movements of inflation in the country of issue). For these purposes, the term "bonds" includes (i) obligations of an issuer to make payments of principal and/or interest on future dates and (ii) synthetic debt instruments created by the Manager by using a futures contract, swap contract, currency forward or option. To implement its investment strategies, the Fund may invest in or hold: inflation indexed bonds issued by the U.S. and foreign governments and their agencies or instrumentalities (inc luding 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; 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); derivatives, including without limitation, futures contracts, currency options, currency forwards, credit default swaps and other swap contracts (to gain exposure to inflation indexed bonds and/or the global interest rate, credit, and currency markets); shares of SDCF (to gain exposure to asset-backed securities); shares of Overlay Fund (to attempt to exploit misvaluations in world interest rates, currencies, and credit markets); shares of GMO Emerging Country Debt Fund ("ECDF") (to gain exposure to sovereign debt of


10


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

emerging countries); and shares of GMO U.S. Treasury Fund (for liquidity management purposes). Because of the deterioration in credit markets that became acute in 2008, the Fund through its investment in SDCF and Overlay Fund currently holds and may continue to hold material positions of below investment grade securities. This is in addition to the Fund's emerging country debt investments. The Fund also may invest in unaffiliated money market funds.

Throughout the year ended August 31, 2009, the Fund had two classes of shares outstanding: Class III and Class VI. Each class of shares bears a different shareholder service fee.

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). As of August 31, 2009, shares of SDCF, GMO Special Purpose Holding Fund and Overlay Fund were not publicly available.

From prior to March 1, 2009 through July 12, 2009 the Fund had a policy to effect redemptions of its shares in-kind above de minimis levels. The Fund established de minimis amounts below which redemptions would be honored for cash. Beginning July 13, 2009, the Fund had a policy to pay redemption requests with cash (less a redemption fee).

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.

As of August 31, 2009, a significant portion of the Fund's dividends received from other GMO funds is expected to be a return of capital for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" reported in the Statement of Operations has been reduced by the portion estimated to be a return of capital as of August 31, 2009. The estimated return of capital is $46,792,582. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the estimated return of capital. Furthermore, the "distributions to shareholders from return of capital" disclosed in the Statement of Changes in Net Assets and Financial Highlights are also estimates as of August 31, 2009. Both the dividends from affiliated issuers and distributions to shareholders from return of capital are subject to change and will not be finalized until February 28, 2010, the Fund's upcoming fiscal year - -end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.


11


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Portfolio valuation

Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 15.88% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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


12


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

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

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Debt Obligations  
U.S. Government   $ —     $ 66,867,129     $ —     $ 66,867,129    
TOTAL DEBT OBLIGATIONS     —       66,867,129       —       66,867,129    
Mutual Funds     28,684,987       306,041,899       —       334,726,886    
Short-Term Investments     299,440       6,815,234       —       7,114,674    
Total Investments     28,984,427       379,724,262       —       408,708,689    
Derivatives  
Futures Contracts     66,438       —       —       66,438    
Swap Agreements     —       6,137,944       —       6,137,944    
Total   $ 29,050,865     $ 385,862,206     $ —     $ 414,913,071    

 

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Futures Contracts   $ (1,444,990 )   $ —     $ —     $ (1,444,990 )  
Total   $ (1,444,990 )   $ —     $ —     $ (1,444,990 )  

 


13


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (both direct and indirect) in securities and other financial instruments using Level 3 inputs were 59.53% and (0.14)% of total net assets, respectively.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Mutual Funds   $ 21,110     $ —     $ —     $ —     $ (2,891 )   $ (18,219 )   $ —    
Total   $ 21,110     $ —     $ —     $ —     $ (2,891 )   $ (18,219 )   $ —    

 

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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the risk of


14


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying


15


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the option. In the event that the Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the-counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts outstanding during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations.


16


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exposure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent


17


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

market disruptions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. The Fund had no repurchase agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 has adopted a tax year-end of December 31. Unless otherwise indicated, all applicable tax disclosures reflect tax adjusted balances as of December 31, 2008. 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 carryforwards 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. The Fund is permitted to, and will from time to time, declare and pay distributions from net investment income, if any, more frequently (e.g. monthly). All distributions are paid in shares of the Fund, at net asset value, unless


18


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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.

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

As of December 31, 2008, the Fund elected to defer to January 1, 2009 post-October capital losses of $1,829,159.

As of December 31, 2008, the Fund had capital loss carryforwards available to offset future realized gains if any, to the extent permitted by the Code. Such losses expire as follows:

12/31/2015   $ (33,561,953 )  
12/31/2016     (23,863,587 )  
Total   $ (57,425,540 )  

 

Utilization of the capital loss carryforwards, post-October capital losses and futures losses, if any, realized subsequent to January 1, 2009, could be subject to limitations imposed by the Code related to share ownership activity.

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 469,468,317     $ 843,201     $ (61,602,829 )   $ (60,759,628 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement


19


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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 incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through August 2, 2009, the fee on cash redemptions was 2.00% of the amount redeemed. From August 3, 2009 through August 31, 2009, the fee on cash redemptions was 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired


20


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

(e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are g enerally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value, and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008.This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Fixed Income Securities — Typically, the value of non-inflation indexed (nominal) fixed income securities will decline during periods of rising nominal interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further. Typically, the value of inflation indexed fixed income securities will decline during periods of rising real interest rates. In addition, increases in real interest rates need not be accompanied by increases in nominal interest rates. In such instances, the value of inflation indexed fixed income securities may experience greater declines than nominal fixed income securities with similar maturities. There can be no assurance that the value of the Fund's inflation indexed bond investments will be directly correlated to changes in nominal interest rates, and short-term increases in inflation may lead to a decline in their value.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security, will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise honor its obligations. This risk is particularly pronounced for the Fund because it typically uses OTC derivatives, including swap contracts with longer-term


21


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

maturities, and may have significant exposure to a single counterparty. The risk of counterparty default is particularly acute in economic environments where financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent the Fund from selling securities or closing derivative positions at desirable prices. The Fund may be required to sell certain less liquid securities at distressed prices or meet redemption requests in-kind. Recent changes in credit markets have reduced the liquidity of all types of fixed income securities, including in particular the asset-backed securities held by the Fund through SDCF and Overlay Fund.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in underlying funds, including the risk that the underlying funds in which it invests will not perform as expected.

Other principal risks of an investment in the Fund include Foreign Investment Risk (risk that the market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Leveraging Risk (increased risks from use of reverse repurchase agreeme nts and other derivatives and securities lending), Currency Risk (risk that fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies), Focused Investment Risk (increased risk from the Fund's to focus on investments in countries, regions, or sectors with high positive correlations to one another), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified. For more information about reverse repurchase agreement and other derivatives, please refer to the descriptions of financial instruments (e.g. reverse repurchase agreements, swaps, futures, and other types of derivative contracts) in Note 2 above as well as the discussion of the Fund's use of derivatives below. Certain of the above referenced risks will be more pronounced for the Fund as a result of its investment in ECDF.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt


22


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of underlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underl ying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

The Fund uses its cash balance to meet its collateral obligations and for other purposes. There is no assurance that the Fund's cash balance will be sufficient to meet those obligations. If it is not, the Fund would be required to liquidate portfolio positions. To manage the Fund's cash collateral needs, the Manager reserves the right to reduce or eliminate the Fund's derivative exposures. A reduction in those exposures may cause


23


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the performance of the 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.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund uses derivatives as a substitute for direct investment in securities or other assets. In particular, the Fund may use swaps (including credit default swaps) or other derivatives on an index, a single security or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives


24


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictability of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.


25


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


26


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on futures
contracts* 		     66,438       —       —       —       —       66,438    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     5,720,334       —       —       —       417,610       6,137,944    
Total   $ 5,786,772     $ —     $ —     $ —     $ 417,610     $ 6,204,382    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on futures
contracts* 		     (1,444,990 )     —       —       —       —       (1,444,990 )  
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ (1,444,990 )   $ —     $ —     $ —     $ —     $ (1,444,990 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


27


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     (21,570 )     —       —       —       —       (21,570 )  
Swap contracts     4,804,900       —       —       —       —       4,804,900    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ 4,783,330     $ —     $ —     $ —     $ —     $ 4,783,330    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     (1,378,552 )     —       —       —       —       (1,378,552 )  
Swap contracts     14,230,526       —       —       —       417,610       14,648,136    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       —       —       —       —       —    
Total   $ 12,851,974     $ —     $ —     $ —     $ 417,610     $ 13,269,584    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures   Swaps  
Average notional amount outstanding   $ 63,225,126     $ 300,000,000    
Highest notional amount outstanding     110,975,301       310,000,000    
Lowest notional amount outstanding     —       275,000,000    

 

Other matters

GMO Special Purpose Holding Fund ("SPHF"), an investment of the Fund, has litigation pending against various entities related to the 2002 default of securities previously held by SPHF. The outcome of the lawsuits against the remaining defendants is not known and any potential recoveries are not reflected in


28


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the net asset value of SPHF. For the period ended August 31, 2009, the Fund received no distributions through SPHF in connection with settlement agreements related to that litigation.

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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's shareholder service fee.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 to the extent that the sum of (a) the Fund's total annual operating expenses (excluding Excluded Fund Fees and Expenses); (b) the amount of fees and expenses incurred indirectly by the Fund through its investment in ECDF (excluding ECDF's Excluded Fund Fees and Expenses); and (c) the amount of fees and expenses incurred indirectly (through investment in other underlying funds) by the Fund through its (direct or indirect) investment in GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to such Fund equ al to 0.25% of the Fund's average daily net assets.


29


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in underlying funds. For the period ended August 31, 2009, 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		  
  0.021 %     0.005 %     0.011 %     0.037 %  

 

        

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, 2009 ended was $3,200 and $1,840, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.

4.  Purchases and sales of securities

For the period ended August 31, 2009, 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   $ 23,239,037     $ —    
Investments (non-U.S. Government securities)     40,390,785       27,375,000    

 

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 78.37% 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.


30


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of August 31, 2009, 0.05% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 73.96% of the Fund's shares were held by accounts for which the Manager had investment discretion.

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     748     $ 11,715       4,861,784     $ 80,097,939    
Shares issued to shareholders
in reinvestment of distributions		     6,705       107,550       628,052       11,067,193    
Shares repurchased     (636,924 )     (10,462,152 )     (3,617,561 )     (81,377,958 )  
Redemption fees     —       31,215       —       20,582    
Net increase (decrease)     (629,471 )   $ (10,311,672 )     1,872,275     $ 9,807,756    
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     540,983     $ 8,901,408       20,092,219     $ 400,069,195    
Shares issued to shareholders
in reinvestment of distributions		     —       —       1,168,087       18,646,359    
Shares repurchased     —       —       (8,097,642 )     (139,676,772 )  
Redemption fees     —       —       —       90,895    
Net increase (decrease)     540,983     $ 8,901,408       13,162,664     $ 279,129,677    

 


31


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 11,878,915     $ 244,279     $ —     $ 244,279     $ —     $ 15,905,358    
GMO Short-Duration
Collateral Fund		     238,892,494       —       —       1,818,037       —       224,223,657    
GMO Special Purpose
Holding Fund		     21,110       —       —       —       —       18,219    
GMO U.S. Treasury Fund     —       40,146,506       27,375,000       21,506       —       12,779,629    
GMO World Opportunity
Overlay Fund		     77,532,563       —       —       —       —       81,800,023 o   
Totals   $ 328,325,082     $ 40,390,785     $ 27,375,000     $ 2,083,822     $ —     $ 334,726,886    

 

o  The Fund received return of capital distributions in the amount of $7,085,088.

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. On September 14, 2009, the Fund's redemption fee was eliminated.


32



GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investments Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees considered information provided by the Manager addressing the Fund's performance, including a performance attribution analysis. 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 overa ll 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. The


33


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investments Management Agreement — (Continued)
August 31, 2009 (Unaudited)

Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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. The Trustees noted 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 of the underlying funds 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


34


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Board Review of Investments Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


35


GMO Inflation Indexed Plus Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including redemption fees; (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, 2009 through August 31, 2009.

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     0.42 %   $ 1,000.00     $ 1,198.50     $ 2.33    
2) Hypothetical     0.42 %   $ 1,000.00     $ 1,023.09     $ 2.14    
Class VI      
1) Actual     0.33 %   $ 1,000.00     $ 1,199.00     $ 1.83    
2) Hypothetical     0.33 %   $ 1,000.00     $ 1,023.54     $ 1.68    

 

*  Expenses are calculated using each Class's annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, 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 International Core Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.0 %  
Short-Term Investments     3.1    
Futures Contracts     0.2    
Forward Currency Contracts     0.1    
Rights and Warrants     0.0    
Other     0.6    
      100.0 %  
Country Summary   % of Equity Investments  
Japan     27.1 %  
United Kingdom     22.6    
France     10.4    
Switzerland     7.4    
Germany     5.3    
Italy     4.5    
Australia     3.8    
Spain     3.2    
Sweden     3.1    
Netherlands     3.0    
Canada     2.1    
Belgium     1.7    
Singapore     1.5    
Hong Kong     1.4    
Finland     1.2    
Greece     0.4    
Ireland     0.4    
Norway     0.3    
Denmark     0.3    
New Zealand     0.2    
Austria     0.1    
Malta     0.0    
      100.0 %  

 


1


GMO International Core Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Industry Group Summary   % of Equity Investments  
Banks     14.1 %  
Pharmaceuticals, Biotechnology & Life Sciences     13.5    
Energy     8.8    
Materials     7.1    
Telecommunication Services     6.4    
Food, Beverage & Tobacco     6.1    
Diversified Financials     5.1    
Capital Goods     5.0    
Automobiles & Components     4.7    
Utilities     4.6    
Retailing     4.5    
Consumer Durables & Apparel     3.1    
Food & Staples Retailing     3.1    
Technology Hardware & Equipment     2.6    
Software & Services     2.0    
Real Estate     1.9    
Insurance     1.8    
Household & Personal Products     1.4    
Transportation     1.3    
Semiconductors & Semiconductor Equipment     0.9    
Consumer Services     0.7    
Health Care Equipment & Services     0.6    
Media     0.4    
Commercial & Professional Services     0.3    
      100.0 %  

 


2



GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.0%  
        Australia — 3.6%  
    1,010,488     Australia and New Zealand Banking Group Ltd     18,153,229    
    353,013     BHP Billiton Ltd     10,979,890    
    4,041,384     BlueScope Steel Ltd     9,777,527    
    2,643,992     Foster's Group Ltd     12,230,537    
    17,398,783     GPT Group (REIT)     9,062,293    
    2,048,208     Lihir Gold Ltd *      4,739,865    
    2,767,511     Mirvac Group     3,443,466    
    550,118     National Australia Bank Ltd     13,236,534    
    229,639     Newcrest Mining Ltd     5,850,745    
    372,429     Origin Energy Ltd     4,817,180    
    4,301,804     Stockland (REIT)     13,689,825    
    662,354     TABCORP Holdings Ltd     3,751,952    
    3,122,777     Telstra Corp Ltd     8,597,519    
    603,376     Woodside Petroleum Ltd     25,036,084    
    459,708     Woolworths Ltd     10,868,530    
    Total Australia     154,235,176    
        Austria — 0.1%  
    66,647     OMV AG     2,631,345    
        Belgium — 1.6%  
    636,553     Anheuser-Busch InBev NV     27,522,384    
    121,412     Belgacom SA     4,560,610    
    44,463     Colruyt SA     10,208,796    
    139,573     Delhaize Group     9,360,001    
    1,042,253     Dexia SA *      8,939,336    
    1,931,606     Fortis *      8,240,163    
    Total Belgium     68,831,290    
        Canada — 2.0%  
    393,400     Bank of Montreal     19,045,627    
    146,800     Barrick Gold Corp     5,066,092    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Canada — continued  
    171,000     Magna International Inc Class A     7,747,522    
    100,400     Metro Inc Class A     3,387,783    
    430,600     National Bank of Canada     24,170,240    
    102,600     Royal Bank of Canada     5,290,496    
    255,300     Sun Life Financial Inc     7,555,807    
    398,080     Suncor Energy Inc     12,177,848    
    Total Canada     84,441,415    
        Denmark — 0.3%  
    190,308     Novo-Nordisk A/S Class B     11,610,522    
        Finland — 1.2%  
    322,652     Neste Oil Oyj     5,368,406    
    1,161,217     Nokia Oyj     16,300,963    
    420,372     Outokumpu Oyj     8,909,255    
    198,044     Rautaruukki Oyj     4,636,737    
    358,843     Sampo Oyj Class A     8,601,339    
    352,031     Tieto Oyj     6,443,777    
    Total Finland     50,260,477    
        France — 10.0%  
    123,768     Air Liquide SA     13,239,241    
    291,876     ArcelorMittal     10,438,716    
    789,208     BNP Paribas     63,635,272    
    69,732     Casino Guichard-Perrachon SA     5,291,323    
    133,919     Compagnie de Saint-Gobain     6,050,383    
    164,389     Essilor International SA     8,893,845    
    1,038,509     France Telecom SA     26,411,427    
    184,958     GDF Suez     7,817,857    
    241,083     Gemalto NV *      10,048,233    
    94,951     Hermes International     14,076,955    
    98,045     L'Oreal SA     9,678,746    
    124,699     Nexans SA     9,135,686    
    241,788     Peugeot SA *      7,017,985    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        France — continued  
    316,752     Renault SA *      14,292,375    
    1,559,915     Sanofi-Aventis     106,211,062    
    409,133     Societe Generale     33,070,066    
    588,030     STMicroelectronics NV     5,110,387    
    217,392     Technip SA     13,481,182    
    727,881     Total SA     41,765,610    
    58,983     Unibail-Rodamco SE (REIT)     11,691,834    
    93,424     Vinci SA     5,028,543    
    133,932     Wendel     6,330,329    
    Total France     428,717,057    
        Germany — 5.1%  
    88,477     Adidas AG     4,172,904    
    160,219     Aurubis AG     6,109,472    
    222,832     BASF AG     11,645,431    
    219,957     Bayerische Motoren Werke AG     10,039,253    
    65,346     Demag Cranes AG     1,973,415    
    394,184     Deutsche Bank AG (Registered)     26,771,852    
    60,800     Deutsche Boerse AG     4,650,278    
    1,871,238     Deutsche Telekom AG (Registered)     24,915,392    
    246,994     E.ON AG     10,465,567    
    392,731     Hannover Rueckversicherung AG (Registered) *      17,301,929    
    974,587     Infineon Technologies AG *      5,134,209    
    248,028     Kloeckner & Co AG *      6,631,292    
    194,395     MTU Aero Engines Holding AG     8,219,669    
    31,482     Muenchener Rueckversicherungs-Gesellschaft AG (Registered)     4,704,183    
    78,464     RWE AG     7,275,690    
    102,662     Salzgitter AG     9,798,478    
    681,039     SAP AG     33,253,542    
    152,374     SGL Carbon SE *      5,641,232    
    87,813     Software AG     6,739,595    
    311,218     Suedzucker AG     6,055,627    
    172,365     ThyssenKrupp AG     5,878,460    
    Total Germany     217,377,470    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Greece — 0.4%  
    545,669     National Bank of Greece SA *      17,139,067    
        Hong Kong — 1.4%  
    3,258,221     CLP Holdings Ltd     21,800,815    
    2,897,000     Hong Kong Electric Holdings Ltd     16,194,658    
    558,300     Hong Kong Exchanges and Clearing Ltd     9,712,743    
    520,000     Sun Hung Kai Properties Ltd     7,016,168    
    1,748,000     Yue Yuen Industrial Holdings     4,561,345    
    Total Hong Kong     59,285,729    
        Ireland — 0.3%  
    405,219     CRH Plc     10,367,889    
    189,865     DCC Plc     4,604,931    
    Total Ireland     14,972,820    
        Italy — 4.3%  
    294,318     Ansaldo STS SPA     5,951,059    
    231,071     Atlantia SPA     5,157,852    
    1,399,959     Bulgari SPA     10,168,152    
    3,539,314     Enel SPA     20,916,727    
    2,298,130     ENI SPA     54,604,860    
    612,015     Fiat SPA *      7,271,289    
    3,728,343     Parmalat SPA     9,587,134    
    271,078     Saipem SPA     7,286,943    
    1,581,229     Snam Rete Gas SPA     7,354,701    
    6,306,580     Telecom Italia SPA     10,220,400    
    5,923,712     Telecom Italia SPA-Di RISP     6,729,883    
    11,326,877     UniCredit SPA *      41,145,628    
    Total Italy     186,394,628    
        Japan — 26.0%  
    1,290,200     Aiful Corp     3,851,704    
    988,700     Alps Electric Co Ltd     5,949,608    
    414,800     Astellas Pharma Inc     16,579,484    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    282,500     Bridgestone Corp     5,155,482    
    220,000     Canon Inc     8,409,867    
    395,700     Chubu Electric Power Co Inc     9,200,189    
    260,500     Chugai Pharmaceutical Co Ltd     5,305,728    
    1,558,600     Chuo Mitsui Trust Holdings Inc     6,554,418    
    533,700     Culture Convenience Club Co Ltd     3,943,172    
    483,600     Daiei Inc *      2,145,104    
    1,055,000     Daiichi Chuo Kisen Kaisha     2,896,618    
    294,948     Daiichi Sankyo Co Ltd     6,277,352    
    2,333,000     Daikyo Inc *      6,064,194    
    135,000     Daito Trust Construction Co Ltd     6,433,509    
    746,000     Daiwabo Co Ltd     3,419,104    
    1,206     DeNa Co Ltd     3,814,092    
    252,800     Don Quijote Co Ltd     6,051,502    
    1,572,000     Dowa Holdings Co Ltd     8,849,893    
    182,700     Eisai Co Ltd     6,676,744    
    694,600     Elpida Memory Inc *      10,830,535    
    246,500     FamilyMart Co Ltd     7,627,048    
    280,900     Fast Retailing Co Ltd     33,632,468    
    3,076,000     Fuji Heavy Industries Ltd     13,291,905    
    244,400     Fuji Oil Co Ltd     3,429,393    
    1,433,000     GS Yuasa Corp     12,479,164    
    153,100     Hikari Tsushin Inc     3,306,127    
    2,307,000     Hitachi Ltd     8,115,392    
    1,724,800     Honda Motor Co Ltd     54,082,058    
    249,700     Ibiden Co Ltd     8,865,504    
    991     INPEX Corp     8,069,580    
    1,379,000     Iseki & Co Ltd *      6,274,470    
    276,900     JFE Holdings Inc     9,663,627    
    2,762,000     Kajima Corp     7,743,814    
    1,450     Kakaku.com Inc     5,418,967    
    734,000     Kao Corp     18,590,264    
    2,476,000     Kawasaki Kisen Kaisha Ltd     10,854,398    
    3,625     Kenedix Inc *      1,748,964    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    12,931     KK daVinci Holdings *      1,981,373    
    305,400     Konami Corp     6,006,469    
    343,200     Kyushu Electric Power Co Inc     7,578,652    
    278,700     Lawson Inc     12,067,504    
    2,477,000     Marubeni Corp     12,301,038    
    769,600     Matsui Securities Co Ltd     7,125,861    
    4,460,000     Mazda Motor Corp     12,378,356    
    120,604     Meiji Holdings Co Ltd *      4,929,323    
    900,200     Mitsubishi Corp     18,197,451    
    4,067,600     Mitsubishi UFJ Financial Group Inc     25,858,819    
    213,450     Mitsubishi UFJ Lease & Finance Co Ltd     6,764,365    
    1,252,000     Mitsui OSK Lines Ltd     7,984,474    
    8,703,600     Mizuho Financial Group Inc     21,175,037    
    1,912     Net One Systems Co Ltd     3,144,245    
    30,600     Nintendo Co Ltd     8,293,309    
    554,000     Nippon Denko Co Ltd     4,243,244    
    274,000     Nippon Electric Glass Co Ltd     2,842,464    
    2,359,000     Nippon Light Metal *      2,713,926    
    344,000     Nippon Meat Packers Inc     4,152,537    
    3,592,500     Nippon Mining Holdings Inc     17,867,070    
    2,749,000     Nippon Oil Corp     15,695,812    
    337,600     Nippon Paper Group Inc     9,922,080    
    1,446,000     Nippon Sheet Glass     5,053,978    
    483,200     Nippon Telegraph & Telephone Corp     21,511,084    
    923,500     Nippon Yakin Koguo Co Ltd     5,391,180    
    2,100,000     Nippon Yusen KK     9,084,252    
    6,090,000     Nissan Motor Co Ltd     42,492,053    
    105,300     Nitori Co Ltd     8,134,568    
    177,400     Nitto Denko Corp     5,379,855    
    808,200     Nomura Holdings Inc     7,161,669    
    19,066     NTT Docomo Inc     29,354,330    
    1,741,000     Obayashi Corp     7,834,370    
    2,301,000     OJI Paper Co Ltd     10,841,728    
    116,100     Ono Pharmaceutical Co Ltd     5,707,204    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    80,100     Oriental Land Co Ltd     5,415,305    
    446,690     ORIX Corp     34,227,763    
    4,878,000     Osaka Gas Co Ltd     16,858,450    
    1,119,000     Pacific Metals Co Ltd     9,371,231    
    103,180     Point Inc     6,307,356    
    1,181,900     Resona Holdings Inc     16,099,161    
    478,000     Ricoh Company Ltd     6,876,640    
    110,900     Ryohin Keikaku Co Ltd     5,061,052    
    203,400     Sankyo Co Ltd     12,793,934    
    5,270,000     Sanyo Electric Co Ltd *      14,205,548    
    1,509,400     Seven & I Holdings Co Ltd     36,428,860    
    765     Seven Bank Ltd     1,941,136    
    745,000     Sharp Corp     8,599,747    
    340,900     Shin-Etsu Chemical Co Ltd     20,130,493    
    451,200     SoftBank Corp     10,103,243    
    6,813,400     Sojitz Corp     14,558,879    
    708,000     SUMCO Corp     14,437,940    
    720,200     Sumitomo Corp     7,368,343    
    681,100     Sumitomo Electric Industries Ltd     8,787,630    
    525,000     Sumitomo Metal Mining Co Ltd     8,077,709    
    1,446,000     Sumitomo Osaka Cement Co Ltd     3,072,991    
    2,176,068     Sumitomo Trust & Banking Co Ltd     13,274,082    
    3,319,000     Taisei Corp     7,275,759    
    289,000     Taisho Pharmaceutical Co Ltd     5,666,708    
    158,000     Taiyo Yuden Co Ltd     1,881,774    
    300,400     Takeda Pharmaceutical Co Ltd     12,084,243    
    743,740     Takefuji Corp     3,799,753    
    963,200     Tokyo Electric Power Co Inc (The)     25,090,167    
    3,148,000     Tokyo Gas Co Ltd     12,606,274    
    709,000     Tokyo Steel Manufacturing Co     9,334,128    
    1,531,000     Tokyo Tatemono Co Ltd     9,043,732    
    332,000     TonenGeneral Sekiyu KK     3,174,081    
    309,000     Toyo Suisan Kaisha Ltd     7,864,044    
    422,200     Toyota Motor Corp     18,000,182    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    718,100     UNY Co Ltd     6,068,782    
    68,980     USS Co Ltd     4,343,242    
    Total Japan     1,113,001,484    
        Malta — 0.0%  
    15,998,662     BGP Holding Plc *      —    
        Netherlands — 2.9%  
    1,980,491     Aegon NV *      14,930,805    
    423,401     Heineken NV     17,910,047    
    2,094,846     ING Groep NV *      31,586,000    
    1,171,071     Koninklijke Ahold NV     13,752,683    
    380,068     Koninklijke DSM NV     13,873,360    
    191,498     OCE NV     1,125,362    
    357,875     Reed Elsevier NV     3,802,345    
    551,144     TomTom NV *      8,141,569    
    416,707     Unilever NV     11,675,200    
    77,569     Wereldhave NV     7,618,098    
    Total Netherlands     124,415,469    
        New Zealand — 0.2%  
    4,439,069     Telecom Corp of New Zealand     8,336,479    
        Norway — 0.3%  
    324,400     DnB NOR ASA *      3,330,533    
    527,100     Tandberg ASA     10,960,660    
    Total Norway     14,291,193    
        Singapore — 1.5%  
    388,200     MobileOne Ltd     460,876    
    2,752,000     Oversea-Chinese Banking Corp Ltd     14,783,980    
    2,568,000     Singapore Exchange Ltd     14,903,250    
    9,263,000     Singapore Telecommunications     20,190,981    
    1,063,000     United Overseas Bank Ltd     12,329,491    
    Total Singapore     62,668,578    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Spain — 3.1%  
    640,508     Banco Bilbao Vizcaya Argentaria SA     11,387,789    
    916,678     Banco Popular Espanol SA     9,880,323    
    2,535,190     Banco Santander SA     39,029,621    
    969,187     Iberdrola SA     8,998,754    
    155,283     Inditex SA     8,468,621    
    582,881     Repsol YPF SA     14,487,917    
    1,595,325     Telefonica SA     40,337,770    
    Total Spain     132,590,795    
        Sweden — 2.9%  
    1,664,400     Boliden AB     17,143,674    
    699,573     Electrolux AB Series B *      14,542,223    
    2,507,590     Ericsson LM B Shares     24,061,998    
    604,314     Hennes & Mauritz AB Class B     33,554,198    
    154,389     Investor AB Class B     2,878,957    
    819,630     Nordea Bank AB     8,597,008    
    373,078     SKF AB Class B     5,716,320    
    612,489     Svenska Handelsbanken AB Class A     16,096,621    
    328,455     Swedbank AB Class A *      3,448,684    
    Total Sweden     126,039,683    
        Switzerland — 7.1%  
    142,066     Actelion Ltd (Registered) *      8,208,599    
    94,482     Baloise Holding Ltd     8,575,945    
    254,271     Compagnie Financiere Richemont SA Class A     6,940,990    
    554,329     Credit Suisse Group AG (Registered)     28,281,303    
    1,619,066     Nestle SA (Registered)     67,406,701    
    2,338,699     Novartis AG (Registered)     108,639,853    
    214,146     Roche Holding AG (Non Voting)     34,108,259    
    55,686     Swatch Group AG     12,037,557    
    52,041     Syngenta AG (Registered)     12,231,964    
    109,136     Synthes Inc     12,786,538    
    348,297     UBS AG (Registered) *      6,411,948    
    Total Switzerland     305,629,657    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — 21.7%  
    2,045,178     3i Group Plc     10,007,480    
    254,509     AMEC Plc     3,106,411    
    1,938,785     AstraZeneca Plc     89,968,728    
    594,945     Autonomy Corp Plc *      12,547,712    
    11,328,481     Barclays Plc *      69,344,277    
    1,021,392     BBA Aviation Plc     2,549,289    
    112,548     Berkeley Group Holdings Plc (Unit Shares) *      1,726,585    
    2,443,614     BG Group Plc     40,092,691    
    1,725,546     BP Plc     14,788,961    
    1,112,330     British American Tobacco Plc     33,798,470    
    1,383,033     Burberry Group Plc     10,832,093    
    938,552     Cadbury Plc     8,812,637    
    930,482     Capita Group Plc     10,282,579    
    941,791     Centrica Plc     3,848,955    
    1,662,839     Compass Group Plc     8,782,538    
    1,101,145     Diageo Plc     17,040,329    
    1,152,230     Drax Group Plc     8,953,960    
    14,225,331     DSG International Plc     6,401,115    
    838,679     FirstGroup Plc     5,151,344    
    1,333,974     Game Group Plc     3,546,540    
    7,111,401     GlaxoSmithKline Plc     138,869,949    
    1,823,642     Home Retail Group Plc     9,193,423    
    1,466,028     HSBC Holdings Plc     15,845,590    
    252,517     Imperial Tobacco Group Plc     7,082,673    
    355,083     Kazakhmys Plc     5,635,215    
    2,252,506     Kesa Electricals Plc     5,125,639    
    2,779,914     Kingfisher Plc     9,524,115    
    1,596,439     Ladbrokes Plc     5,037,001    
    530,802     Lancashire Holdings Ltd     3,998,417    
    16,352,021     Lloyds Banking Group Plc     29,280,169    
    528,965     London Stock Exchange     6,897,597    
    1,067,197     Marks & Spencer Group Plc     5,870,570    
    297,035     Michael Page International Plc     1,639,391    
    546,340     Next Plc     14,491,877    
    1,742,971     Northern Foods Plc     1,809,534    

 

See accompanying notes to the financial statements.


12


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    785,508     Pearson Plc     9,555,180    
    220,843     Provident Financial Plc     3,165,289    
    634,872     Reckitt Benckiser Group Plc     29,354,882    
    567,226     Royal Dutch Shell Group Class A (Amsterdam)     15,732,406    
    1,256,063     Royal Dutch Shell Plc A Shares (London)     34,740,680    
    1,025,532     Royal Dutch Shell Plc B Shares (London)     27,669,399    
    269,545     Scottish & Southern Energy Plc     4,892,936    
    263,394     Signet Jewelers Ltd     6,230,489    
    589,724     Smith & Nephew Plc     4,993,065    
    240,143     Spectris Plc     2,729,367    
    1,117,893     Stagecoach Group Plc     2,441,397    
    773,690     Standard Chartered Plc     17,463,362    
    1,802,295     Tesco Plc     10,970,994    
    1,671,407     Tomkins Plc     4,820,002    
    962,818     Travis Perkins Plc     12,562,308    
    1,525,424     Trinity Mirror Plc     3,401,184    
    373,755     Unilever Plc     10,213,207    
    240,560     Vedanta Resources Plc     6,948,098    
    24,041,221     Vodafone Group Plc     52,020,968    
    601,663     WH Smith Plc     4,301,075    
    1,784,158     William Hill Plc     5,351,691    
    946,764     Wolseley Plc *      22,155,171    
    3,190,902     Wolseley Plc (Deferred)     —    
    1,050,580     Xstrata Plc     13,938,424    
    Total United Kingdom     927,535,428    
    TOTAL COMMON STOCKS (COST $4,440,663,865)     4,110,405,762    

 

See accompanying notes to the financial statements.


13


GMO International Core Equity Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 3.1%        
CAD 349,635     Bank of America Time Deposit, 0.04%, due 09/01/09     319,374    
EUR 179,331     Bank of Ireland Time Deposit, 0.06%, due 09/01/09     257,090    
USD 54,156     Bank of Ireland Time Deposit, 0.03%, due 09/01/09     54,156    
USD 25,800,000     BNP Paribas Time Deposit, 0.18%, due 09/01/09     25,800,000    
CHF 17,872     Brown Brothers Harriman Time Deposit, 0.02%, due 09/01/09     16,878    
HKD 77,505     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,000    
NOK 64,322     Brown Brothers Harriman Time Deposit, 0.35%, due 09/01/09     10,689    
NZD 14,876     Brown Brothers Harriman Time Deposit, 1.50%, due 09/01/09     10,209    
SEK 72,234     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,147    
DKK 213,907     Citibank Time Deposit, 0.30%, due 09/01/09     41,199    
USD 25,800,000     Commerzbank Time Deposit, 0.15%, due 09/01/09     25,800,000    
AUD 588,795     Deutsche Bank Time Deposit, 2.17%, due 09/01/09     497,649    
JPY 35,207,480     HSBC Bank (Hong Kong) Time Deposit, 0.01%, due 09/01/09     378,372    
USD 25,800,000     HSBC Bank (USA) Time Deposit, 0.13%, due 09/01/09     25,800,000    
SGD 677,636     JPMorgan Chase Time Deposit, 0.01%, due 09/01/09     470,270    
USD 25,700,000     Royal Bank of Canada Time Deposit, 0.15%, due 09/01/09     25,700,000    
USD 25,800,000     Societe Generale Time Deposit, 0.13%, due 09/01/09     25,800,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $130,976,033)     130,976,033    
        TOTAL INVESTMENTS — 99.1%
(Cost $4,571,639,898)		     4,241,381,795    
        Other Assets and Liabilities (net) — 0.9%     40,364,240    
    TOTAL NET ASSETS — 100.0%   $ 4,281,746,035    

 

See accompanying notes to the financial statements.


14


GMO International Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys †   
10/23/09   CHF     42,003,191     $ 39,685,404     $ 692,468    
10/23/09   CHF     42,003,191       39,685,405       591,467    
10/23/09   EUR     14,395,064       20,637,227       368,400    
10/23/09   HKD     92,032,935       11,879,379       (590 )  
10/23/09   SEK     161,793,547       22,733,641       484,956    
10/23/09   SEK     161,793,547       22,733,641       405,895    
10/23/09   SEK     161,793,547       22,733,641       350,603    
10/23/09   SEK     161,793,547       22,733,641       406,372    
10/23/09   SEK     161,793,547       22,733,641       469,679    
10/23/09   SEK     161,793,547       22,733,641       477,485    
10/23/09   SEK     161,793,547       22,733,641       462,446    
    $ 271,022,902     $ 4,709,181    
Sales #   
10/23/09   CAD     24,322,175     $ 22,219,032     $ (288,987 )  
10/23/09   CAD     25,059,210       22,892,336       (262,383 )  
10/23/09   CAD     24,322,175       22,219,032       (246,193 )  
10/23/09   EUR     13,447,345       19,278,546       116,156    
10/23/09   GBP     17,020,486       27,706,267       476,254    
10/23/09   GBP     17,020,486       27,706,267       275,072    
10/23/09   SEK     95,393,508       13,403,759       (71,706 )  
10/23/09   SGD     27,689,752       19,206,960       (121,109 )  
10/23/09   SGD     27,689,752       19,206,960       (133,336 )  
    $ 193,839,159     $ (256,232 )  

 

†  Fund buys foreign currency; sells USD.

#  Fund sells foreign currency; buys USD.

See accompanying notes to the financial statements.


15


GMO International Core Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  507     CAC40   September 2009   $ 26,631,848     $ 1,803,934    
  167     DAX   September 2009     32,785,509       3,376,836    
  75     FTSE 100   September 2009     5,962,114       666,979    
  407     FTSE/MIB   September 2009     65,688,467       7,551,773    
  286     MSCI Singapore   September 2009     12,433,601       (142,103 )  
  197     TOPIX   September 2009     20,329,343       910,499    
    $ 163,830,882     $ 14,167,918    
Sales      
  574     S&P Toronto 60   September 2009   $ 68,350,436     $ (3,301,614 )  

 

As of August 31, 2009, 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.

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
USD - United States 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, 2009 (Unaudited)

Assets:  
Investments, at value (cost $4,571,639,898) (Note 2)   $ 4,241,381,795    
Foreign currency, at value (cost $153,891) (Note 2)     152,675    
Dividends and interest receivable     10,757,987    
Foreign taxes receivable     3,185,287    
Unrealized appreciation on open forward currency contracts (Note 2)     5,577,253    
Receivable for collateral on open futures contracts (Note 2)     25,918,710    
Receivable for expenses reimbursed by Manager (Note 3)     140,647    
Total assets     4,287,114,354    
Liabilities:  
Payable for Fund shares repurchased     858,433    
Payable to affiliate for (Note 3):  
Management fee     1,349,934    
Shareholder service fee     327,806    
Trustees and Chief Compliance Officer of GMO Trust fees     7,993    
Payable for variation margin on open futures contracts (Note 2)     582,203    
Unrealized depreciation on open forward currency contracts (Note 2)     1,124,304    
Miscellaneous payable     417,299    
Accrued expenses     700,347    
Total liabilities     5,368,319    
Net assets   $ 4,281,746,035    

 

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, 2009 (Unaudited) — (Continued)

Net assets consist of:  
Paid-in capital   $ 5,786,104,002    
Accumulated undistributed net investment income     74,101,194    
Accumulated net realized loss     (1,263,735,693 )  
Net unrealized depreciation     (314,723,468 )  
    $ 4,281,746,035    
Net assets attributable to:  
Class III shares   $ 1,239,683,821    
Class IV shares   $ 1,005,179,331    
Class VI shares   $ 2,036,882,883    
Shares outstanding:  
Class III     46,507,289    
Class IV     37,728,978    
Class VI     76,472,929    
Net asset value per share:  
Class III   $ 26.66    
Class IV   $ 26.64    
Class VI   $ 26.64    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $7,502,538)   $ 76,459,913    
Interest     106,520    
Total investment income     76,566,433    
Expenses:  
Management fee (Note 3)     7,359,480    
Shareholder service fee – Class III (Note 3)     814,133    
Shareholder service fee – Class IV (Note 3)     618,995    
Shareholder service fee – Class VI (Note 3)     388,398    
Custodian and fund accounting agent fees     765,624    
Legal fees     73,784    
Audit and tax fees     41,124    
Trustees fees and related expenses (Note 3)     38,143    
Transfer agent fees     24,564    
Registration fees     13,524    
Miscellaneous     98,057    
Total expenses     10,235,826    
Fees and expenses reimbursed by Manager (Note 3)     (946,956 )  
Expense reductions (Note 2)     (1,989 )  
Net expenses     9,286,881    
Net investment income (loss)     67,279,552    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (738,538,250 )  
Closed futures contracts     (9,272,229 )  
Foreign currency, forward contracts and foreign currency related transactions     9,712,913    
Net realized gain (loss)     (738,097,566 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     2,106,987,052    
Open futures contracts     30,762,713    
Foreign currency, forward contracts and foreign currency related transactions     12,132,787    
Net unrealized gain (loss)     2,149,882,552    
Net realized and unrealized gain (loss)     1,411,784,986    
Net increase (decrease) in net assets resulting from operations   $ 1,479,064,538    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 67,279,552     $ 144,264,443    
Net realized gain (loss)     (738,097,566 )     (495,995,163 )  
Change in net unrealized appreciation (depreciation)     2,149,882,552       (2,413,814,411 )  
Net increase (decrease) in net assets from operations     1,479,064,538       (2,765,545,131 )  
Distributions to shareholders from:  
Net investment income  
Class III     (9,813,263 )     (33,600,867 )  
Class IV     (11,028,299 )     (33,761,743 )  
Class VI     (12,261,617 )     (125,844,027 )  
Total distributions from net investment income     (33,103,179 )     (193,206,637 )  
Net realized gains  
Class III     —       (7,902,343 )  
Class IV     —       (7,358,071 )  
Class VI     —       (28,358,623 )  
Total distributions from net realized gains     —       (43,619,037 )  
      (33,103,179 )     (236,825,674 )  
Net share transactions (Note 7):  
Class III     (22,113,118 )     495,120,468    
Class IV     (670,883,805 )     741,372,190    
Class VI     408,089,466       (545,537,754 )  
Increase (decrease) in net assets resulting from net share
transactions		     (284,907,457 )     690,954,904    
Total increase (decrease) in net assets     1,161,053,902       (2,311,415,901 )  
Net assets:  
Beginning of period     3,120,692,133       5,432,108,034    
End of period (including accumulated undistributed net investment
income of $74,101,194 and $39,924,821, respectively)		   $ 4,281,746,035     $ 3,120,692,133    

 

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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 18.15     $ 37.25     $ 39.38     $ 35.23     $ 30.81     $ 26.75    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.38       0.92       1.01       0.86       0.72       0.55    
Net realized and unrealized
gain (loss)		     8.34       (18.54 )     (0.51 )     6.06       4.79       4.54    
Total from investment
operations		     8.72       (17.62 )     0.50       6.92       5.51       5.09    
Less distributions to shareholders:  
From net investment income     (0.21 )     (1.19 )     (0.68 )     (0.77 )     (0.16 )     (0.54 )  
From net realized gains     —       (0.29 )     (1.95 )     (2.00 )     (0.93 )     (0.49 )  
Total distributions     (0.21 )     (1.48 )     (2.63 )     (2.77 )     (1.09 )     (1.03 )  
Net asset value, end of period   $ 26.66     $ 18.15     $ 37.25     $ 39.38     $ 35.23     $ 30.81    
Total Return(a)      48.16 %**      (48.61 )%     0.69 %     20.04 %     18.26 %     19.20 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,239,684     $ 855,690     $ 917,685     $ 877,816     $ 820,336     $ 321,463    
Net expenses to average daily
net assets		     0.53 %(b)*      0.53 %(c)      0.53 %(c)      0.53 %     0.54 %     0.55 %  
Net investment income to
average daily net assets		     3.34 %*      3.08 %     2.44 %     2.29 %     2.26 %     1.98 %  
Portfolio turnover rate     25 %**      41 %     43 %     47 %     43 %     45 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.05 %*      0.05 %     0.05 %     0.05 %     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.

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

†  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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 18.14     $ 37.23     $ 39.36     $ 35.21     $ 30.80     $ 26.75    
Income (loss) from investment
operations:		  
Net investment income (loss)†      0.40       0.94       1.04       0.85       0.65       0.56    
Net realized and unrealized
gain (loss)		     8.31       (18.53 )     (0.52 )     6.09       4.87       4.54    
Total from investment
operations		     8.71       (17.59 )     0.52       6.94       5.52       5.10    
Less distributions to shareholders:  
From net investment income     (0.21 )     (1.21 )     (0.70 )     (0.79 )     (0.18 )     (0.56 )  
From net realized gains     —       (0.29 )     (1.95 )     (2.00 )     (0.93 )     (0.49 )  
Total distributions     (0.21 )     (1.50 )     (2.65 )     (2.79 )     (1.11 )     (1.05 )  
Net asset value, end of
period		   $ 26.64     $ 18.14     $ 37.23     $ 39.36     $ 35.21     $ 30.80    
Total Return(a)      48.14 %**      (48.56 )%     0.75 %     20.14 %     18.31 %     19.24 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 1,005,179     $ 1,166,165     $ 947,063     $ 711,712     $ 1,183,535     $ 255,580    
Net expenses to average daily
net assets		     0.47 %(b)*      0.47 %(c)      0.47 %(c)      0.47 %     0.48 %     0.49 %  
Net investment income to
average daily net assets		     3.57 %*      3.18 %     2.51 %     2.27 %     1.98 %     2.01 %  
Portfolio turnover rate     25 %**      41 %     43 %     47 %     43 %     45 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.05 %*      0.05 %     0.05 %     0.05 %     0.11 %     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.

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

†  Calculated using average shares outstanding throughout the period.

*  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, 2009		   Year Ended February 28,  
    (Unaudited)   2009   2008   2007(a)   
Net asset value, beginning of period   $ 18.13     $ 37.22     $ 39.35     $ 36.09    
Income (loss) from investment operations:  
Net investment income (loss)†      0.39       0.92       0.98       0.74    
Net realized and unrealized gain (loss)     8.32       (18.50 )     (0.45 )     5.33    
Total from investment operations     8.71       (17.58 )     0.53       6.07    
Less distributions to shareholders:  
From net investment income     (0.20 )     (1.22 )     (0.71 )     (0.81 )  
From net realized gains     —       (0.29 )     (1.95 )     (2.00 )  
Total distributions     (0.20 )     (1.51 )     (2.66 )     (2.81 )  
Net asset value, end of period   $ 26.64     $ 18.13     $ 37.22     $ 39.35    
Total Return(b)      48.21 %**      (48.56 )%     0.78 %     17.24 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 2,036,883     $ 1,098,838     $ 3,567,360     $ 1,377,829    
Net expenses to average daily net assets     0.44 %(c)*      0.44 %(d)      0.44 %(d)      0.44 %*   
Net investment income to average daily net assets     3.39 %*      3.07 %     2.36 %     2.11 %*   
Portfolio turnover rate     25 %**      41 %     43 %     47 %††   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.05 %*      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.

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

†  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, 2009 (Unaudited)

1.  Organization

GMO International Core Equity Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the MSCI EAFE Index (Europe, Australasia, and Far East). The Fund typically makes equity investments in companies tied economically to countries other than the U.S. Under normal circumstances, the Fund invests at least 80% of its assets in equity investments (which include common stocks and other stock-related securities, such as preferred stocks, convertible securities, and depository receipts). The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, futures, an d swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

Throughout the period ended August 31, 2009, the Fund had three classes of shares outstanding: Class III, Class IV and Class VI. Each class of shares bears a different shareholder service fee.

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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). Unlisted securities for


24


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 93.15% of the net assets of the Fund were valued using fair value prices based on models used by a third party vendor and are classified as using Level 2 inputs in the table below.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

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


25


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Common Stocks  
Australia   $ 10,979,890     $ 143,255,286     $ —     $ 154,235,176    
Austria     —       2,631,345       —       2,631,345    
Belgium     —       68,831,290       —       68,831,290    
Canada     84,441,415       —       —       84,441,415    
Denmark     —       11,610,522       —       11,610,522    
Finland     —       50,260,477       —       50,260,477    
France     26,411,427       402,305,630       —       428,717,057    
Germany     —       217,377,470       —       217,377,470    
Greece     —       17,139,067       —       17,139,067    
Hong Kong     —       59,285,729       —       59,285,729    
Ireland     —       14,972,820       —       14,972,820    
Italy     —       186,394,628       —       186,394,628    
Japan     —       1,113,001,484       —       1,113,001,484    
Malta     —       0 *      —       0    
Netherlands     —       124,415,469       —       124,415,469    
New Zealand     —       8,336,479       —       8,336,479    
Norway     —       14,291,193       —       14,291,193    
Singapore     —       62,668,578       —       62,668,578    
Spain     —       132,590,795       —       132,590,795    
Sweden     —       126,039,683       —       126,039,683    
Switzerland     —       305,629,657       —       305,629,657    
United Kingdom     —       927,535,428       —       927,535,428    
TOTAL COMMON STOCKS     121,832,732       3,988,573,030       —       4,110,405,762    
Short-Term Investments     130,976,033       —       —       130,976,033    
Total Investments     252,808,765       3,988,573,030       —       4,241,381,795    
Derivatives  
Forward Currency Contracts     —       5,577,253       —       5,577,253    
Futures Contracts     —       14,310,021       —       14,310,021    
Total   $ 252,808,765     $ 4,008,460,304     $ —     $ 4,261,269,069    

 

*  Represents the interest in securities that have no value at August 31, 2009.


26


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Forward Currency Contracts   $ —     $ (1,124,304 )   $ —     $ (1,124,304 )  
Futures Contracts     (3,301,614 )     (142,103 )     —       (3,443,717 )  
Total   $ (3,301,614 )   $ (1,266,407 )   $ —     $ (4,568,021 )  

 

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, 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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


27


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign futures on those exchanges do not reflect events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign futures using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor based on that vendor's proprietary models. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying


28


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the option. In the event that the Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations.


29


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exposure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. The Fund had no swap agreements outstanding at the end of the period.


30


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and warrants 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 carryforwards 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 certain 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.


31


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $283,595,779.

As of February 28, 2009, 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:

2/28/2017   $ (215,235,940 )  
Total   $ (215,235,940 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 4,634,585,541     $ 274,003,951     $ (667,207,697 )   $ (393,203,746 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of the statute of limitations by U.S. federal and state tax authorities for tax returns filed.

For the period ended August 31, 2009, the Fund had net realized losses attributed to redemption in-kind transactions of $111,462,201.

Security transactions and related investment income

Security transactions are accounted for on the trade date in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon


32


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.


33


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Other principal risks of an investment in the Fund include Market Risk — Value Securities (risk that the price of the Fund's securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments in companies with smaller market capitalizations), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected).

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a


34


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index). The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC


35


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in cases where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Assets:  
Investments, at value (rights and
warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts* 		     —       —       —       14,310,021       —       14,310,021    
Unrealized appreciation on
forward currency contracts		     —       5,577,253       —       —       —       5,577,253    
Unrealized appreciation on
swap agreements		     —       —       —       —       —       —    
Total   $ —     $ 5,577,253     $ —     $ 14,310,021     $ —     $ 19,887,274    

 


36


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       (3,443,717 )     —       (3,443,717 )  
Unrealized depreciation on
forward currency contracts		     —       (1,124,304 )     —       —       —       (1,124,304 )  
Unrealized depreciation on
swap agreements		     —       —       —       —       —       —    
Total   $ —     $ (1,124,304 )   $ —     $ (3,443,717 )   $ —     $ (4,568,021 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Net Realized Gain (Loss) on:  
Investments (rights and warrants)   $ —     $ —     $ —     $ (20,856,533 )   $ —     $ (20,856,533 )  
Futures contracts     —       —       —       (9,272,229 )     —       (9,272,229 )  
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       8,310,578       —       —       —       8,310,578    
Total   $ —     $ 8,310,578     $ —     $ (30,128,762 )   $ —     $ (21,818,184 )  

 


37


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		  
Total		  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (rights and warrants)   $ —     $ —     $ —     $ 439,699     $ —     $ 439,699    
Futures contracts     —       —       —       30,762,713       —       30,762,713    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       11,956,040       —       —       —       11,956,040    
Total   $ —     $ 11,956,040     $ —     $ 30,762,713     $ —     $ 42,718,753    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Futures   Rights/Warrants  
Average notional amount outstanding   $ 677,441,702     $ 209,630,178     $ 1,799,638    
Highest notional amount outstanding     811,628,536       242,885,823       10,347,247    
Lowest notional amount outstanding     464,862,061       152,532,761       —    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.38% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief


38


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasu ry Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.38% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.38% of the Fund's average daily net assets.

The Fund's portion of the fee paid by the Trust to the independent Trustees and CCO during the period ended August 31, 2009 was $30,323 and $17,664, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $988,417,777 and $926,599,570, respectively. Proceeds from sales of securities for in-kind transactions for the period ended August 31, 2009 were $285,886,439.

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 24.33% 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.

As of August 31, 2009, less than 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 43.92% of the Fund's shares were held by accounts for which the Manager had investment discretion.


39


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     3,597,023     $ 73,825,193       24,667,921     $ 554,316,558    
Shares issued to shareholders
in reinvestment of distributions		     339,642       8,035,924       1,343,947       36,964,534    
Shares repurchased     (4,574,076 )     (103,974,235 )     (3,502,126 )     (96,160,624 )  
Net increase (decrease)     (637,411 )   $ (22,113,118 )     22,509,742     $ 495,120,468    
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     3,816,004     $ 78,316,047       56,498,768     $ 1,087,585,834    
Shares issued to shareholders
in reinvestment of distributions		     466,313       11,028,299       1,320,611       35,699,368    
Shares repurchased     (30,850,336 )     (760,228,151 )     (18,958,207 )     (381,913,012 )  
Net increase (decrease)     (26,568,019 )   $ (670,883,805 )     38,861,172     $ 741,372,190    
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class VI:   Shares   Amount   Shares   Amount  
Shares sold     22,000,913     $ 525,862,468       22,188,760     $ 566,965,336    
Shares issued to shareholders
in reinvestment of distributions		     518,329       12,253,293       5,699,175       154,153,325    
Shares repurchased     (6,662,424 )     (130,026,295 )     (63,112,155 )     (1,266,656,415 )  
Net increase (decrease)     15,856,818     $ 408,089,466       (35,224,220 )   $ (545,537,754 )  

 


40


GMO International Core Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


41



GMO International Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In


42


GMO International Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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, including the effect of recent market events and chan ges in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 facto rs, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


43


GMO International Core Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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 15, 2009, 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, 2009.


44


GMO International Core Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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.


45


GMO International Core Equity Fund

(A Series of GMO Trust)

Fund Expenses — (Continued)
August 31, 2009 (Unaudited)

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

    Annualized
Net Expense
Ratio		   Beginning
Account
Value		   Ending
Account
Value		   Net
Expense
Incurred* 		  
Class III  
1) Actual     0.53 %   $ 1,000.00     $ 1,481.60     $ 3.32    
2) Hypothetical     0.53 %   $ 1,000.00     $ 1,022.53     $ 2.70    
Class IV  
1) Actual     0.47 %   $ 1,000.00     $ 1,481.40     $ 2.94    
2) Hypothetical     0.47 %   $ 1,000.00     $ 1,022.84     $ 2.40    
Class VI  
1) Actual     0.44 %   $ 1,000.00     $ 1,482.10     $ 2.75    
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, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


46



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     65.9 %  
Debt Obligations     26.8    
Cash and Cash Equivalents     13.4    
Short-Term Investments     6.1    
Options Purchased     0.6    
Preferred Stocks     0.5    
Loan Participations     0.1    
Loan Assignments     0.0    
Private Equity Securities     0.0    
Investment Funds     0.0    
Rights and Warrants     0.0    
Convertible Securities     0.0    
Promissory Notes     0.0    
Forward Currency Contracts     (0.0 )  
Written Options     (0.2 )  
Reverse Repurchase Agreements     (1.9 )  
Swaps     (5.4 )  
Futures     (9.8 )  
Other     3.9    
      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, 2009 (Unaudited)

Country / Region Summary**   % of Investments  
United States     80.2 %  
Japan     4.7    
Euro Region***     3.5    
United Kingdom     2.4    
Switzerland     1.5    
South Korea     1.2    
Russia     1.1    
Brazil     0.9    
Sweden     0.8    
China     0.7    
Taiwan     0.7    
Turkey     0.7    
India     0.4    
Indonesia     0.3    
Thailand     0.3    
Argentina     0.1    
Canada     0.1    
Colombia     0.1    
Egypt     0.1    
Malaysia     0.1    
Mexico     0.1    
Norway     0.1    
Philippines     0.1    
Poland     0.1    
South Africa     0.1    
Uruguay     0.1    
Venezuela     0.1    
Hong Kong     (0.1 )  
Australia     (0.5 )  
      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, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.


2



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        DEBT OBLIGATIONS — 3.5%  
        Asset-Backed Securities — 3.5%  
        Auto Financing — 0.5%  
    312,101     BMW Vehicle Lease Trust, Series 07-1, Class A3B, 1 mo. LIBOR + .24%,
0.51%, due 08/15/13		     311,926    
    100,000     Capital Auto Receivable Asset Trust, Series 07-SN1, Class A4,
1 mo. LIBOR + .10%, 0.37%, due 02/15/11		     97,750    
    700,000     Capital Auto Receivable Asset Trust, Series 08-1, Class A4B,
1 mo. LIBOR + 1.35%, 1.62%, due 07/15/14		     668,066    
    300,000     Daimler Chrysler Auto Trust, Series 08-B, Class A4A, 5.32%, due 11/10/14     315,799    
    500,000     Daimler Chrysler Auto Trust, Series 08-B, Class A4B, 1 mo. LIBOR + 1.85%,
2.13%, due 11/10/14		     481,250    
    67,068     Daimler Chrysler Master Owner Trust, Series 06-A, Class A,
1 mo. LIBOR + .03%, 0.30%, due 11/15/11		     66,754    
    1,400,000     Ford Credit Auto Owner Trust, Series 08-B, Class A4B,
1 mo. LIBOR + 2.00%, 2.27%, due 03/15/13		     1,424,374    
    1,300,000     Ford Credit Floorplan Master Owner Trust, Series 06-4, Class A,
1 mo. LIBOR + .25%, 0.52%, due 06/15/13		     1,209,000    
    600,000     Nissan Auto Lease Trust, Series 08-A, Class A3B, 1 mo. LIBOR + 2.20%,
2.47%, due 07/15/11		     596,640    
    600,000     Nissan Auto Receivables Owner Trust, Series 07-A, Class A4, 1 mo. LIBOR,
0.27%, due 06/17/13		     596,819    
    600,000     Nissan Master Owner Trust Receivables, Series 07-A, Class A, 1 mo. LIBOR,
0.27%, due 05/15/12		     573,000    
    1,100,000     Swift Master Auto Receivables Trust, Series 07-1, Class A,
1 mo. LIBOR + .10%, 0.37%, due 06/15/12		     1,023,000    
    1,200,000     Truck Retail Installment Paper Corp., Series 05-1A, Class A, 144A,
1 mo. LIBOR + .27%, 0.54%, due 12/15/16		     1,035,121    
    Total Auto Financing     8,399,499    
        Bank Loan Collateralized Debt Obligations — 0.1%  
    1,840,000     Omega Capital Europe Plc, Series GLOB-5A, Class A1, 144A,
3 mo. LIBOR + .25%, 0.83%, due 07/05/11		     1,637,600    
        Business Loans — 0.3%  
    524,217     Bayview Commercial Asset Trust, Series 04-3, Class A1, 144A,
1 mo. LIBOR + .37%, 0.64%, due 01/25/35		     366,952    

 

See accompanying notes to the financial statements.


3


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Business Loans — continued  
    484,908     GE Business Loan Trust, Series 04-1, Class A, 144A, 1 mo. LIBOR + .29%,
0.56%, due 05/15/32		     334,587    
    1,600,000     GE Dealer Floorplan Master Trust, Series 07-2, Class A,
1 mo. LIBOR + .01%, 0.28%, due 07/20/12		     1,575,360    
    1,320,671     Lehman Brothers Small Balance Commercial, Series 05-2A, Class 1A, 144A,
1 mo. LIBOR + .25%, 0.52%, due 09/25/30		     792,402    
    700,000     Navistar Financial Dealer Note Master Trust, Series 05-1, Class A,
1 mo. LIBOR + .11%, 0.39%, due 02/25/13		     679,000    
    600,000     Textron Financial Floorplan Master Note, Series 07-AA, Class A, 144A,
1 mo. LIBOR + .06%, 0.33%, due 03/13/12		     390,000    
    Total Business Loans     4,138,301    
        CMBS — 0.3%  
    700,000     Commercial Mortgage Pass-Through Certificates, Series 06-FL12, Class AJ,
144A, 1 mo. LIBOR + .13%, 0.40%, due 12/15/20		     385,000    
    800,000     GE Capital Commercial Mortgage Corp., Series 05-C4, Class A2, 5.31%,
due 11/10/45		     802,720    
    177,739     Greenwich Capital Commercial Funding Corp., Series 06-FL4A, Class A1,
144A, 1 mo. LIBOR + .09%, 0.37%, due 11/05/21		     152,855    
    822,268     GS Mortgage Securities Corp., Series 07-EOP, Class A1, 144A,
1 mo. LIBOR + .09%, 0.37%, due 03/06/20		     715,373    
    1,100,000     J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-LDP7,
Class A2, 6.05%, due 04/15/45		     1,108,914    
    500,000     Merrill Lynch Mortgage Trust, Series 06-C1, Class A2, 5.79%, due 05/12/39     503,150    
    127,379     Morgan Stanley Dean Witter Capital I, Series 03-TOP9, Class A1, 3.98%,
due 11/13/36		     127,762    
    531,246     Wachovia Bank Commercial Mortgage Trust, Series 06-WL7A, Class A1,
144A, 1 mo. LIBOR + .09%, 0.36%, due 09/15/21		     382,497    
    Total CMBS     4,178,271    
        CMBS Collateralized Debt Obligations — 0.1%  
    1,600,000     American Capital Strategies Ltd. Commercial Real Estate CDO Trust,
Series 07-1A, Class A, 144A, 3 mo. LIBOR + .80%, 1.21%, due 11/23/52		     112,000    
    1,635,713     Crest Exeter Street Solar, Series 04-1A, Class A1, 144A,
3 mo. LIBOR + .35%, 0.95%, due 06/28/19		     981,428    
    Total CMBS Collateralized Debt Obligations     1,093,428    

 

See accompanying notes to the financial statements.


4


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — 0.6%  
    1,400,000     American Express Credit Account Master Trust, Series 05-5, Class A,
1 mo. LIBOR + .04%, 0.31%, due 02/15/13		     1,393,168    
    1,900,000     Capital One Multi-Asset Execution Trust, Series 04-A7, Class A7,
3 mo. LIBOR + .15%, 0.59%, due 06/16/14		     1,862,589    
    700,000     Charming Shoppes Master Trust, Series 07-1A, Class A1, 144A,
1 mo. LIBOR + 1.25%, 1.52%, due 09/15/17		     646,723    
    800,000     Citibank OMNI Master Trust, Series 07-A9A, Class A9, 144A,
1 mo. LIBOR + 1.10%, 1.37%, due 12/23/13		     796,800    
    1,600,000     Discover Card Master Trust I, Series 96-4, Class A, 1 mo. LIBOR + .38%,
0.65%, due 10/16/13		     1,572,960    
    1,200,000     GE Capital Credit Card Master Note Trust, Series 05-1, Class A,
1 mo. LIBOR + .04%, 0.31%, due 03/15/13		     1,194,372    
    1,100,000     Household Credit Card Master Note Trust I, Series 07-1, Class A,
1 mo. LIBOR + .05%, 0.32%, due 04/15/13		     1,082,812    
    200,000     MBNA Credit Card Master Note Trust, Series 04-A8, Class A8,
1 mo. LIBOR + .15%, 0.42%, due 01/15/14		     196,300    
    800,000     National City Credit Card Master Trust, Series 08-3, Class A,
1 mo. LIBOR + 1.80%, 2.07%, due 05/15/13		     776,000    
    1,300,000     World Financial Network Credit Card Master Trust, Series 06-A, Class A,
144A, 1 mo. LIBOR + .13%, 0.40%, due 02/15/17		     1,171,222    
    Total Credit Cards     10,692,946    
        Equipment Leases — 0.1%  
    800,000     CNH Equipment Trust, Series 08-A, Class A4B, 1 mo. LIBOR + 1.95%,
2.23%, due 08/15/14		     810,480    
    821,270     GE Equipment Midticket LLC, Series 07-1, Class A3B, 1 mo. LIBOR + .25%,
0.52%, due 06/14/11		     818,190    
    Total Equipment Leases     1,628,670    
        Insurance Premiums — 0.1%  
    800,000     AICCO Premium Finance Master Trust, Series 07-AA, Class A, 144A,
1 mo. LIBOR + .05%, 0.32%, due 12/15/11		     768,480    
        Insured Auto Financing — 0.3%  
    92,390     AmeriCredit Automobile Receivables Trust, Series 05-BM, Class A4, MBIA,
1 mo. LIBOR + .08%, 0.36%, due 05/06/12		     91,295    

 

See accompanying notes to the financial statements.


5


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Auto Financing — continued  
    1,400,000     AmeriCredit Automobile Receivables Trust, Series 07-AX, Class A4, XL,
1 mo. LIBOR + .04%, 0.32%, due 10/06/13		     1,344,420    
    800,000     AmeriCredit Prime Automobile Receivable Trust, Series 07-2M, Class A4B,
MBIA, 1 mo. LIBOR + .50%, 0.78%, due 03/08/16		     725,110    
    741,466     Capital One Auto Finance Trust, Series 06-B, Class A4, MBIA,
1 mo. LIBOR + .02%, 0.29%, due 07/15/13		     720,898    
    662,616     Capital One Auto Finance Trust, Series 07-C, Class A3B, FGIC,
1 mo. LIBOR + .51%, 0.78%, due 04/16/12		     655,221    
    1,100,000     Santander Drive Auto Receivables Trust, Series 07-3, Class A4B, FGIC,
1 mo. LIBOR + .65%, 0.92%, due 10/15/14		     1,023,770    
    1,100,000     Triad Auto Receivables Owner Trust, Series 07-B, Class A4B, FSA,
1 mo. LIBOR + 1.20%, 1.48%, due 07/14/14		     1,001,000    
    Total Insured Auto Financing     5,561,714    
        Insured Other — 0.1%  
    1,000,000     Dominos Pizza Master Issuer LLC, Series 07-1, Class A2, 144A, MBIA,
5.26%, due 04/25/37		     802,835    
    813,498     Henderson Receivables LLC, Series 06-4A, Class A1, 144A, MBIA,
1 mo. LIBOR + .20%, 0.47%, due 12/15/41		     619,332    
    2,500,000     Toll Road Investment Part II, Series C, 144A, MBIA, Zero Coupon,
due 02/15/37		     236,225    
    Total Insured Other     1,658,392    
        Insured Residential Asset-Backed Securities (United States) — 0.0%  
    435,278     Residential Asset Mortgage Products, Inc., Series 05-RS9, Class AI3, FGIC,
1 mo. LIBOR + .22%, 0.49%, due 11/25/35		     195,875    
        Insured Residential Mortgage-Backed Securities (United States) — 0.0%  
    218,146     Chevy Chase Mortgage Funding Corp., Series 04-1A, Class A2, 144A,
AMBAC, 1 mo. LIBOR + .33%, 0.60%, due 01/25/35		     104,710    
    102,772     GreenPoint Home Equity Loan Trust, Series 04-4, Class A, AMBAC,
1 mo. LIBOR + .28%, 0.83%, due 08/15/30		     57,561    
    338,495     Wachovia Asset Securitization, Inc., Series 04-HE1, Class A, MBIA,
1 mo. LIBOR + .22%, 0.49%, due 06/25/34		     162,968    
    Total Insured Residential Mortgage-Backed Securities (United States)     325,239    

 

See accompanying notes to the financial statements.


6


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Time Share — 0.0%  
    26,861     Cendant Timeshare Receivables Funding LLC, Series 04-1A, Class A2, 144A,
MBIA, 1 mo. LIBOR + .18%, 0.45%, due 05/20/16		     21,896    
    164,126     Cendant Timeshare Receivables Funding LLC, Series 05-1A, Class A2, 144A,
FGIC, 1 mo. LIBOR + .18%, 0.45%, due 05/20/17		     149,355    
    Total Insured Time Share     171,251    
        Investment Grade Corporate Collateralized Debt Obligations — 0.2%  
    1,600,000     Morgan Stanley ACES SPC, Series 04-15, Class II, 144A,
3 mo. LIBOR + .65%, 1.26%, due 12/20/09		     1,490,400    
    1,000,000     Morgan Stanley ACES SPC, Series 05-10, Class A1, 144A,
3 mo. LIBOR + .52%, 1.13%, due 03/20/10		     876,500    
    1,400,000     Salisbury International Investments Ltd., 3 mo. LIBOR + .42%, 1.03%,
due 06/22/10		     1,005,200    
    Total Investment Grade Corporate Collateralized Debt Obligations     3,372,100    
        Residential Asset-Backed Securities (United States) — 0.5%  
    27,166     ACE Securities Corp., Series 06-ASL1, Class A, 1 mo. LIBOR + .14%,
0.41%, due 02/25/36		     4,333    
    891,716     ACE Securities Corp., Series 07-WM1, Class A2A, 1 mo. LIBOR + .07%,
0.34%, due 11/25/36		     423,565    
    600,000     Argent Securities, Inc., Series 06-M1, Class A2C, 1 mo. LIBOR + .15%,
0.42%, due 07/25/36		     141,750    
    1,200,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3C,
1 mo. LIBOR + .15%, 0.42%, due 10/25/36		     476,760    
    56,726     Asset Backed Funding Certificates, Series 06-OPT3, Class A3A,
1 mo. LIBOR + .06%, 0.33%, due 11/25/36		     55,024    
    894,738     Bayview Financial Acquisition Trust, Series 04-B, Class A1, 144A,
1 mo. LIBOR + .50%, 1.26%, due 05/28/39		     629,895    
    569,379     Bayview Financial Acquisition Trust, Series 04-B, Class A2, 144A,
1 mo. LIBOR + .65%, 1.56%, due 05/28/39		     341,627    
    456,009     Carrington Mortgage Loan Trust, Series 07-FRE1, Class A1,
1 mo. LIBOR + .12%, 0.39%, due 02/25/37		     417,361    
    1,200,000     Centex Home Equity, Series 06-A, Class AV3, 1 mo. LIBOR + .16%, 0.43%,
due 06/25/36		     840,000    
    595,312     Countrywide Asset-Backed Certificates, Series 06-BC5, Class 2A1,
1 mo. LIBOR + .08%, 0.35%, due 03/25/37		     555,962    

 

See accompanying notes to the financial statements.


7


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    117,977     Equity One ABS, Inc., Series 04-1, Class AV2, 1 mo. LIBOR + .30%, 0.57%,
due 04/25/34		     49,440    
    800,000     First Franklin Mortgage Loan Asset Backed Certificates, Series 06-FF5,
Class 2A3, 1 mo. LIBOR + .16%, 0.43%, due 04/25/36		     324,000    
    342,964     Fremont Home Loan Trust, Series 06-B, Class 2A2, 1 mo. LIBOR + .10%,
0.37%, due 08/25/36		     222,820    
    847,014     Household Home Equity Loan Trust, Series 05-3, Class A2,
1 mo. LIBOR + .29%, 0.56%, due 01/20/35		     644,789    
    600,000     Master Asset-Backed Securities Trust, Series 06-FRE2, Class A4,
1 mo. LIBOR + .15%, 0.42%, due 03/25/36		     212,526    
    2,400,000     Master Asset-Backed Securities Trust, Series 06-HE3, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 08/25/36		     728,232    
    816,844     Master Second Lien Trust, Series 06-1, Class A, 1 mo. LIBOR + .16%, 0.43%,
due 03/25/36		     26,547    
    305,806     Merrill Lynch Mortgage Investors, Series 07-HE2, Class A2A,
1 mo. LIBOR + .12%, 0.39%, due 02/25/37		     158,652    
    951,706     Morgan Stanley Home Equity Loans, Series 07-2, Class A1,
1 mo. LIBOR + .10%, 0.37%, due 04/25/37		     743,283    
    940,498     Residential Asset Securities Corp., Series 05-KS12, Class A2,
1 mo. LIBOR + .25%, 0.52%, due 01/25/36		     799,423    
    Total Residential Asset-Backed Securities (United States)     7,795,989    
        Residential Mortgage-Backed Securities (Australian) — 0.1%  
    554,754     Interstar Millennium Trust, Series 03-3G, Class A2, 3 mo. LIBOR + .25%,
1.10%, due 09/27/35		     440,486    
    282,101     Interstar Millennium Trust, Series 05-1G, Class A, 3 mo. LIBOR + .12%,
0.75%, due 12/08/36		     231,788    
    727,761     Medallion Trust, Series 06-1G, Class A1, 3 mo. LIBOR + .05%, 0.68%,
due 06/14/37		     673,185    
    336,867     Superannuation Members Home Loans Global Fund, Series 8, Class A1,
3 mo. LIBOR + .07%, 0.58%, due 01/12/37		     290,343    
    Total Residential Mortgage-Backed Securities (Australian)     1,635,802    
        Residential Mortgage-Backed Securities (European) — 0.1%  
    602,778     Aire Valley Mortgages, Series 06-1A, Class 1A, 144A, 3 mo. LIBOR + .11%,
0.72%, due 09/20/66		     301,389    

 

See accompanying notes to the financial statements.


8


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (European) — continued  
    700,000     Brunel Residential Mortgages, Series 07-1A, Class A4C, 144A,
3 mo. LIBOR + .10%, 0.61%, due 01/13/39		     614,469    
    250,623     Granite Master Issuer Plc, Series 06-2, Class A4, 1 mo. LIBOR + .04%, 0.31%,
due 12/20/54		     195,486    
    41,413     Paragon Mortgages Plc, Series 7A, Class A1A, 144A, 3 mo. LIBOR + .21%,
0.65%, due 05/15/34		     27,234    
    540,538     Paragon Mortgages Plc, Series 14A, Class A2C, 144A, 3 mo. LIBOR + .10%,
0.73%, due 09/15/39		     279,847    
    800,000     Pendeford Master Issuer Plc, Series 07-1A, Class 3A, 144A,
3 mo. LIBOR + .10%, 0.56%, due 02/12/16		     752,000    
    Total Residential Mortgage-Backed Securities (European)     2,170,425    
        Residential Mortgage-Backed Securities (United States) — 0.0%  
    120,169     Chevy Chase Mortgage Funding Corp., Series 04-3A, Class A2, 144A,
1 mo. LIBOR + .30%, 0.57%, due 08/25/35		     57,681    
        Student Loans — 0.1%  
    1,500,000     College Loan Corp. Trust, Series 06-1, Class A2, 3 mo. LIBOR + .02%,
0.52%, due 04/25/22		     1,494,375    
        Time Share — 0.0%  
    232,854     Sierra Receivables Funding Co., Series 08-1A, Class A2, 144A,
1 mo. LIBOR + 4.00%, 4.27%, due 02/20/20		     227,615    
    Total Asset-Backed Securities     57,203,653    
        U.S. Government Agency — 0.0%  
    58,525     Agency for International Development Floater (Support of C.A.B.E.I),
6 mo. U.S. Treasury Bill + .40%, 0.66%, due 10/01/12 (a) 		     56,953    
    168,317     Agency for International Development Floater (Support of Honduras),
3 mo. U.S. Treasury Bill x 117%, 0.26%, due 10/01/11 (a) 		     164,286    
    166,667     Agency for International Development Floater (Support of Zimbabwe),
3 mo. U.S. Treasury Bill x 115%, 0.20%, due 01/01/12 (a) 		     161,819    
    Total U.S. Government Agency     383,058    
    TOTAL DEBT OBLIGATIONS (COST $55,473,708)     57,586,711    

 

See accompanying notes to the financial statements.


9


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 96.5%  
        Affiliated Issuers — 96.5%  
    63,027,757     GMO Alpha Only Fund, Class IV     313,878,230    
    743,346     GMO Alternative Asset Opportunity Fund     19,081,689    
    2,018,900     GMO Asset Allocation Bond Fund, Class VI     51,825,166    
    3,665,708     GMO Emerging Country Debt Fund, Class IV     28,225,952    
    8,343,169     GMO Emerging Markets Fund, Class VI     88,854,750    
    2,830,870     GMO Flexible Equities Fund, Class VI     57,834,678    
    16,978,233     GMO International Small Companies Fund, Class III     116,810,244    
    34,447,106     GMO Quality Fund, Class VI     605,924,588    
    1,781,790     GMO Special Situations Fund, Class VI     48,072,689    
    15,836,267     GMO Strategic Fixed Income Fund, Class VI     254,488,805    
    932,004     GMO World Opportunity Overlay Fund     18,043,600    
    TOTAL MUTUAL FUNDS (COST $1,718,664,341)     1,603,040,391    
        SHORT-TERM INVESTMENTS — 0.0%  
        Money Market Funds — 0.0%  
    31,948     State Street Institutional U.S. Government Money Market
Fund-Institutional Class		     31,948    
    TOTAL SHORT-TERM INVESTMENTS (COST $31,948)     31,948    
            TOTAL INVESTMENTS — 100.0%
(Cost $1,774,169,997)		     1,660,659,050    
            Other Assets and Liabilities (net) — 0.00%     5,670    
    TOTAL NET ASSETS — 100.0%   $ 1,660,664,720    

 

See accompanying notes to the financial statements.


10


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Notes to Schedule of Investments:

144A - Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional investors.

AMBAC - Insured as to the payment of principal and interest by AMBAC Assurance Corporation.

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

CDO - Collateralized Debt Obligation

CMBS - Commercial 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.

XL - Insured as to the payment of principal and interest by XL Capital Assurance.

The rates shown on variable rate notes are the current interest rates at August 31, 2009, 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.

See accompanying notes to the financial statements.


11



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $55,505,656) (Note 2)   $ 57,618,659    
Investments in affiliated issuers, at value (cost $1,718,664,341) (Notes 2 and 8)     1,603,040,391    
Receivable for investments sold     14,625,828    
Receivable for Fund shares sold     10,250,000    
Interest receivable     53,276    
Receivable for expenses reimbursed by Manager (Note 3)     12,710    
Miscellaneous receivable     44,857    
Total assets     1,685,645,721    
Liabilities:  
Payable for investments purchased     28    
Payable for Fund shares repurchased     24,920,686    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     3,225    
Accrued expenses     57,062    
Total liabilities     24,981,001    
Net assets   $ 1,660,664,720    
Net assets consist of:  
Paid-in capital   $ 1,891,359,896    
Accumulated undistributed net investment income     6,932,264    
Accumulated net realized loss     (124,116,493 )  
Net unrealized depreciation     (113,510,947 )  
    $ 1,660,664,720    
Net assets attributable to:  
Class III shares   $ 1,660,664,720    
Shares outstanding:  
Class III     79,280,967    
Net asset value per share:  
Class III   $ 20.95    

 

See accompanying notes to the financial statements.


12


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 30,539,872    
Interest     1,978,342    
Dividends     2,950    
Total investment income     32,521,164    
Expenses:  
Legal fees     30,360    
Custodian, fund accounting agent and transfer agent fees     24,472    
Trustees fees and related expenses (Note 3)     15,873    
Audit and tax fees     15,640    
Chief Compliance Officer (Note 3)     7,360    
Registration fees     2,760    
Miscellaneous     3,588    
Total expenses     100,053    
Fees and expenses reimbursed by Manager (Note 3)     (76,820 )  
Expense reductions (Note 2)     (416 )  
Net expenses     22,817    
Net investment income (loss)     32,498,347    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     90,638    
Investments in affiliated issuers     (131,725,287 )  
Net realized gain (loss)     (131,634,649 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     6,685,474    
Investments in affiliated issuers     383,697,983    
Net unrealized gain (loss)     390,383,457    
Net realized and unrealized gain (loss)     258,748,808    
Net increase (decrease) in net assets resulting from operations   $ 291,247,155    

 

See accompanying notes to the financial statements.


13


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 32,498,347     $ 217,782,345    
Net realized gain (loss)     (131,634,649 )     33,168,350    
Change in net unrealized appreciation (depreciation)     390,383,457       (499,180,237 )  
Net increase (decrease) in net assets from operations     291,247,155       (248,229,542 )  
Distributions to shareholders from:  
Net investment income  
Class III     (11,618,316 )     (249,189,711 )  
Net realized gains  
Class III     (1,400,564 )     (37,083,602 )  
      (13,018,880 )     (286,273,313 )  
Net share transactions (Note 7):  
Class III     (55,063,268 )     361,232,562    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     548,963       154,811    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     (54,514,305 )     361,387,373    
Total increase (decrease) in net assets     223,713,970       (173,115,482 )  
Net assets:  
Beginning of period     1,436,950,750       1,610,066,232    
End of period (including accumulated undistributed net
investment income of $6,932,264 and distributions in
excess of net investment income of $13,947,767,
respectively)		   $ 1,660,664,720     $ 1,436,950,750    

 

See accompanying notes to the financial statements.


14



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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 17.51     $ 25.30     $ 26.92     $ 27.76     $ 26.50     $ 24.28    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.40       3.21       1.19       0.80       1.26       0.98    
Net realized and unrealized
gain (loss)		     3.21       (6.72 )     1.18       1.63       2.93       3.00    
Total from investment
operations		     3.61       (3.51 )     2.37       2.43       4.19       3.98    
Less distributions to shareholders:  
From net investment income     (0.15 )     (3.71 )     (1.12 )     (1.16 )     (1.51 )     (0.99 )  
From net realized gains     (0.02 )     (0.57 )     (2.87 )     (2.11 )     (1.42 )     (0.77 )  
Total distributions     (0.17 )     (4.28 )     (3.99 )     (3.27 )     (2.93 )     (1.76 )  
Net asset value, end of period   $ 20.95     $ 17.51     $ 25.30     $ 26.92     $ 27.76     $ 26.50    
Total Return(b)      20.64 %**      (15.11 )%     8.60 %     9.31 %     16.50 %     16.74 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,660,665     $ 1,436,951     $ 1,610,066     $ 1,296,396     $ 1,207,625     $ 1,068,099    
Net expenses to average daily
net assets(c)(d) 		     0.00 %(e)*      0.00 %(e)      0.00 %(e)      0.00 %     0.00 %     0.00 %  
Net investment income to
average daily net assets(a) 		     4.12 %*      14.05 %     4.30 %     2.94 %     4.64 %     3.92 %  
Portfolio turnover rate     17 %**      40 %     57 %     45 %     47 %     50 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.01 %*      0.01 %     0.01 %     0.01 %     0.01 %     0.02 %  
Purchase premiums and
redemption fees consisted
of the following
per share amounts:† 		   $ 0.01     $ 0.00 (f)    $ 0.00 (f)    $ 0.00 (f)    $ 0.00 (f)    $ 0.07    

 

(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)  Net expenses to average daily net assets were less than 0.01%.

(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.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


15



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Benchmark-Free Allocation Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 is a fund of funds and invests primarily in shares or holds assets of other series of the Trust, which may include the GMO International Equity 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, GMO Short-Duration Collateral Fund, GMO Special Situations Fund, and GMO World Opportunity Overlay Fund (the GMO Funds in which the Fund invests are collectively referred to as "underlying funds"). In addition, the Fund may hold securities (particularly asset-backed securities) directly or through one or more subsidiaries or other entities. The Fund implements its strategy by allocating its assets among asset classes represented by the underlying funds (e.g., foreign equity, U.S. equity, emerging country equity, emerging country debt, foreign fixed income, U.S. fixed income, and commodities) . The Fund is not restricted in its exposure to any particular asset class, and at times may be substantially invested in underlying funds that primarily invest in a single asset class (e.g., Fixed Income Funds). In addition, the Fund is not restricted in its exposure to any particular market. Although the Fund generally will have exposure to both emerging countries and developed countries, including the U.S., at times, it also may have substantial exposure to a particular country or type of country (e.g., emerging countries). The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

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). As of August 31, 2009, shares of GMO Alternative Asset Opportunity Fund, GMO Flexible Equities Fund, GMO Short-Duration Collateral Fund, GMO Special Situations Fund, and GMO World Opportunity Overlay Fund were 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


16


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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.

As of August 31, 2009, a portion of the Fund's return of capital received from certain other GMO funds is expected to be classified as dividend income for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" as reported in the Statement of Operations has been increased by the portion estimated to be dividend income as of August 31, 2009. The estimated increase in dividend income is $1,033,603. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the additional income. The dividends from affiliated issuers are subject to change and will not be finalized until February 28, 2010, the Fund's fiscal year-end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Shares of the underlying funds and other mutual funds are generally 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 26.09% of the net assets of the Fund, through investments in the underlying funds,


17


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

were valued using fair value prices based on models used by that third party vendor. Those underlying funds classify such securities under SFAS 157 (as defined below) as level 2.

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 4.66% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund valued certain debt securities using indicative bids received from primary pricing sources. The Fund valued certain debt securities using a specified spread above the LIBOR Rate.


18


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Debt Obligations  
Asset-Backed Securities   $ —     $ 9,093,082     $ 48,110,571     $ 57,203,653    
U.S. Government Agency     —       —       383,058       383,058    
TOTAL DEBT OBLIGATIONS     —       9,093,082       48,493,629       57,586,711    
Mutual Funds     1,460,007,735       143,032,656       —       1,603,040,391    
Short-Term Investments     —       31,948       —       31,948    
Total Investments     1,460,007,735       152,157,686       48,493,629       1,660,659,050    
Total   $ 1,460,007,735     $ 152,157,686     $ 48,493,629     $ 1,660,659,050    

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (both direct and indirect) in securities and other financial instruments using Level 3 inputs were 16.99% and (0.05%) of total net assets, respectively.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Debt Obligations  
Asset-Backed
Securities		   $ 55,256,761     $ (6,354,800 )   $ 807,261     $ 810,245     $ 6,684,186     $ (9,093,082 )   $ 48,110,571    
U.S. Government
Agency		     451,344       (74,926 )     2,746       2,606       1,288       —       383,058    
Total   $ 55,708,105     $ (6,429,726 )   $ 810,007     $ 812,851     $ 6,685,474     $ (9,093,082 )   $ 48,493,629    

 


19


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 carryforwards 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.

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

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 1,811,244,121     $ 194,314,681     $ (344,899,752 )   $ (150,585,071 )  

 

For the period ended August 31, 2009, the Fund had net realized losses attributed to redemption in-kind transactions of $489,814.

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or


20


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. 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 uses the identified cost basis for the purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through June 29, 2009, the premium on cash purchases was 0.10% of the amount invested and the fee on cash redemptions was 2.00% of the amount redeemed. From June 30, 2009 through August 31, 2009, the purchase premium remained at 0.10% of the amount invested and the redemption fee was changed to 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premi um or redemption fee with respect to that portion. The Manager may consider known cash flows out of or into other series of the Trust when placing orders for the cash purchase or redemption of shares by the Fund shareholders or other prospective or existing shareholders of the Funds for whom GMO provides asset allocation advice. Consequently, the Fund and those other


21


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

shareholders for whom GMO provides asset allocation advice will tend to benefit from waivers of the Funds' purchase premiums and redemption fees to a greater extent than other prospective and existing shareholders of the other series of the Trust. All or a portion of the Fund's purchase premiums and/or redemption fees may be waived at the Manager's discretion when they are de minimis and/or the Manager deems it equitable to do so, including without limitation when the weighted average of (i) the estimated transaction costs for directly held assets and (ii) the purchase premium and/or redemption fees, if any, imposed by the underlying funds are less than the purchase premium and/or redemption fee imposed by the Fund. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transactio n costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of a Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund, including those risks to which the Fund is exposed as a result of its investments in underlying funds. This summary is not intended to include every potential risk of investing in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time. In addition, while each GMO Fund is exposed to some level of management risk, this risk may be particularly pronounced for this Fund because it does not seek to control risk relative to, or to outperform, a particular securities market index or benchmark.

• Market Risk — Equity Securities — From time to time, the Fund may allocate part or all of its assets to equity investments (including investments in emerging country equities). Equity securities held by underlying funds may decline in value due to factors affecting issuing companies, their industries, or the economy and equity markets generally. Declines in stock market prices generally are likely to result in declines in the value of the underlying funds' investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. An underlying


22


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Market Risk — Fixed Income Securities — From time to time, the Fund may allocate part or all of its assets to fixed income securities, which may include emerging country debt (including below investment grade securities (also known as "junk bonds")). Typically, the value of an underlying fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Smaller Company Risk — From time to time, the Fund may allocate part or all of its assets to investments in companies with smaller market capitalizations. The securities of companies with smaller market capitalizations typically are less widely held, trade less frequently and in lesser quantities, and have market prices that may fluctuate more than those of securities of larger capitalization companies.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent an underlying fund from selling securities or closing derivative positions at desirable prices.

• Derivatives Risk — The use of derivatives by underlying funds involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of an underlying fund's foreign currency holdings and investments denominated in foreign currencies.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in the underlying funds, including the risk that the underlying funds in which it invests will not perform as expected. Because the Fund bears the fees and expenses of the underlying funds in which it invests, investments in underlying funds with higher fees or expenses than the underlying funds in which the Fund is invested will increase the Fund's total expenses. The fees and expenses associated with an investment in the Fund are less predictable and may potentially be higher than fees and expenses associated with an investment in funds that charge a fixed management fee.

Other principal risks of an investment in the Fund include Credit and Counterparty Risk (risk of default of an issuer of a portfolio security or a derivatives counterparty of an underlying fund or a borrower of an underlying fund's securities), Commodities Risk (value of an underlying fund's shares may be affected by factors particular to the commodities markets and may fluctuate more than the share value of a fund with a


23


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

broader range of investments), Leveraging Risk (increased risk from use of reverse repurchase agreements and other derivatives and securities lending by an underlying fund), Short Sales Risk (risk that an underlying fund's loss on the short sale of securities that it does not own is unlimited), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market D isruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). Some of the underlying funds are non-diversified investment companies under the 1940 Act, and therefore a decline in the market value of a particular security held by those funds may affect their performance more than if they were diversified.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of u nderlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underl ying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may


24


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.

3.  Fees and other transactions with affiliates

The Manager decides how to allocate the assets of the Fund among underlying funds. The Manager does not charge the Fund a management fee or shareholder service fee, but it receives management and shareholder service fees from the underlying funds in which the Fund invests. Because those fees vary from fund to fund, the levels of indirect net expenses set forth below are affected by the Manager's asset allocation decisions.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.00% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) or would be an investment co mpany 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, nonrecurring and certain other unusual expenses (including taxes).


25


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2009, 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		  
  0.406 %     0.068 %     0.004 %     0.478 %  

 

        

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, 2009 was $12,653 and $7,360, respectively. The compensation and expenses of the CCO are included in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $306,318,320 and $264,790,856, respectively. Securities disposed of through in-kind transactions for the period ended August 31, 2009 was $1,250,655.

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 22.64% 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.

As of August 31, 2009, 1.15% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 97.09% of the Fund's shares were held by accounts for which the Manager had investment discretion.


26


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		  
Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,639,827     $ 32,613,161       5,802,830     $ 125,161,583    
Shares issued to shareholders
in reinvestment of distributions		     564,011       11,054,634       14,154,108       273,113,176    
Shares repurchased     (4,970,920 )     (98,731,063 )     (1,546,197 )     (37,042,197 )  
Purchase premiums     —       10,556       —       97,972    
Redemption fees     —       538,407       —       56,839    
Net increase (decrease)     (2,767,082 )   $ (54,514,305 )     18,410,741     $ 361,387,373    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 434,803,314     $ 79,751,236     $ 152,754,320     $ 21,277,263     $ —     $ 313,878,230    
GMO Alternative Asset
Opportunity Fund		     16,373,298       —       65,257       —       —       19,081,689    
GMO Asset Allocation
Bond Fund, Class VI		     —       64,352,371       14,027,205       —       —       51,825,166    
GMO Emerging Country
Debt Fund, Class IV		     21,081,143       432,794       —       432,794       —       28,225,952    
GMO Emerging Markets
Fund, Class VI		     64,789,027       23,215,474       59,521,700       328,308       —       88,854,750    
GMO Flexible Equities
Fund, Class VI		     46,651,926       83,441       4,013,395       —       —       57,834,678    
GMO International Small
Companies Fund,
Class III		     42,720,670       36,339,390       7,021,750       976,013       —       116,810,244    

 


27


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value,
end of
period		  
GMO Quality Fund,
Class VI		   $ 401,725,164     $ 93,225,560     $ 12,422,732     $ 6,491,891     $ —     $ 605,924,588    
GMO Special Situations
Fund, Class VI		     45,145,613       8,918,025       8,600,000       —       —       48,072,689    
GMO Strategic Fixed
Income Fund, Class VI		     275,849,692       —       1,117,492       1,033,603       —       254,488,805 t   
GMO World Opportunity
Overlay Fund		     17,169,667       —       67,906       —       —       18,043,600 o   
Totals   $ 1,366,309,514     $ 306,318,291     $ 259,611,757     $ 30,539,872     $ —     $ 1,603,040,391    

 

t  The Fund received return of capital distributions in the amount of $60,385,511. Please note that in early 2010, Form 1099-DIV is anticipated to be sent to applicable shareholders that will state the actual tax characterization of all distributions paid in 2009.

o  The Fund received return of capital distributions in the amount of $1,562,842.

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. Effective September 14, 2009, the premium on cash purchases was 0.09% of the amount invested and the fee on cash redemptions was 0.12% of the amount redeemed.


28



GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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 one- and five-year periods 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 experi ence 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


29


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

advisory fees paid to the Manager by other funds of the Trust in which it invests. The Trustees also considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 (including the effect of recent market events and changes in assets under management and revenues on such profitability); 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


30


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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 15, 2009, 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, 2009.


31


GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.48 %   $ 1,000.00     $ 1,206.40     $ 2.67    
2) Hypothetical     0.48 %   $ 1,000.00     $ 1,022.79     $ 2.45    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, 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 Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     68.9 %  
Debt Obligations     24.7    
Cash and Cash Equivalents     6.8    
Short-Term Investments     5.5    
Preferred Stocks     0.6    
Options Purchased     0.3    
Loan Participations     0.0    
Private Equity Securities     0.0    
Investment Funds     0.0    
Loan Assignments     0.0    
Convertible Securities     0.0    
Forward Currency Contracts     0.0    
Rights and Warrants     0.0    
Promissory Notes     0.0    
Written Options     (0.1 )  
Reverse Repurchase Agreements     (1.8 )  
Swaps     (2.6 )  
Futures     (5.0 )  
Other     2.7    
      100.0 %  

 

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


1


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Country / Region Summary**   % of Investments  
United States     62.1 %  
Euro Region***     8.3    
Japan     8.2    
United Kingdom     6.5    
Switzerland     3.1    
South Korea     1.6    
Sweden     1.2    
Russia     1.1    
Brazil     1.0    
China     0.9    
Taiwan     0.9    
Turkey     0.9    
Australia     0.6    
India     0.5    
Thailand     0.5    
Canada     0.4    
Emerging     0.4    
Singapore     0.4    
Hong Kong     0.2    
Indonesia     0.2    
Poland     0.2    
Denmark     0.1    
Egypt     0.1    
Israel     0.1    
Malaysia     0.1    
Mexico     0.1    
Norway     0.1    
Philippines     0.1    
South Africa     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, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia 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, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        DEBT OBLIGATIONS — 3.3%  
        Asset-Backed Securities — 3.2%  
        ABS Collateralized Debt Obligations — 0.0%  
    500,000     Paragon CDO Ltd., Series 04-1A, Class A, 144A, 3 mo. LIBOR + .65%,
1.16%, due 10/20/44		     15,000    
        Airlines — 0.0%  
    600,000     Aircraft Finance Trust, Series 99-1A, Class A1, 144A, 1 mo. LIBOR + .48%,
0.75%, due 05/15/24		     174,000    
        Auto Financing — 0.5%  
    624,202     BMW Vehicle Lease Trust, Series 07-1, Class A3B, 1 mo. LIBOR + .24%,
0.51%, due 08/15/13		     623,852    
    900,000     Capital Auto Receivable Asset Trust, Series 07-2, Class A4B,
1 mo. LIBOR + .40%, 0.67%, due 02/18/14		     893,700    
    400,000     Capital Auto Receivable Asset Trust, Series 07-SN1, Class A4,
1 mo. LIBOR + .10%, 0.37%, due 02/15/11		     391,000    
    200,000     Capital Auto Receivable Asset Trust, Series 08-1, Class A4B,
1 mo. LIBOR + 1.35%, 1.62%, due 07/15/14		     190,876    
    800,000     Carmax Auto Owner Trust, Series 08-2, Class A4B, 1 mo. LIBOR + 1.65%,
1.92%, due 08/15/13		     806,352    
    700,000     Daimler Chrysler Auto Trust, Series 08-B, Class A4A, 5.32%, due 11/10/14     736,865    
    600,000     Daimler Chrysler Auto Trust, Series 08-B, Class A4B, 1 mo. LIBOR + 1.85%,
2.13%, due 11/10/14		     577,500    
    120,723     Daimler Chrysler Master Owner Trust, Series 06-A, Class A,
1 mo. LIBOR + .03%, 0.30%, due 11/15/11		     120,156    
    800,000     Ford Credit Auto Owner Trust, Series 06-C, Class A4B, 1 mo. LIBOR + .04%,
0.31%, due 02/15/12		     794,664    
    500,000     Ford Credit Auto Owner Trust, Series 07-B, Class A4B, 1 mo. LIBOR + .38%,
0.65%, due 07/15/12		     493,750    
    1,100,000     Ford Credit Auto Owner Trust, Series 08-B, Class A4B,
1 mo. LIBOR + 2.00%, 2.27%, due 03/15/13		     1,119,151    
    2,200,000     Ford Credit Floorplan Master Owner Trust, Series 06-4, Class A,
1 mo. LIBOR + .25%, 0.52%, due 06/15/13		     2,046,000    
    300,000     Franklin Auto Trust, Series 08-A, Class A4B, 1 mo. LIBOR + 1.95%,
2.22%, due 05/20/16		     303,750    

 

See accompanying notes to the financial statements.


3


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Auto Financing — continued  
    1,000,000     Nissan Auto Lease Trust, Series 08-A, Class A3B, 1 mo. LIBOR + 2.20%,
2.47%, due 07/15/11		     994,400    
    1,000,000     Nissan Auto Receivables Owner Trust, Series 07-A, Class A4, 1 mo. LIBOR,
0.27%, due 06/17/13		     994,698    
    1,000,000     Nissan Master Owner Trust Receivables, Series 07-A, Class A, 1 mo. LIBOR,
0.27%, due 05/15/12		     955,000    
    1,100,000     Swift Master Auto Receivables Trust, Series 07-1, Class A,
1 mo. LIBOR + .10%, 0.37%, due 06/15/12		     1,023,000    
    500,000     Swift Master Auto Receivables Trust, Series 07-2, Class A,
1 mo. LIBOR + .65%, 0.92%, due 10/15/12		     456,280    
    1,100,000     Truck Retail Installment Paper Corp., Series 05-1A, Class A, 144A,
1 mo. LIBOR + .27%, 0.54%, due 12/15/16		     948,861    
    400,000     Wachovia Auto Owner Trust, Series 08-A, Class A4B, 1 mo. LIBOR + 1.15%,
1.42%, due 03/20/14		     399,484    
    600,000     World Omni Auto Receivables Trust, Series 07-A, Class A4, 1 mo. LIBOR,
0.27%, due 11/15/12		     590,988    
    Total Auto Financing     15,460,327    
        Bank Loan Collateralized Debt Obligations — 0.0%  
    415,908     Arran Corp. Loans No. 1 B.V., Series 06-1A, Class A3, 144A,
3 mo. LIBOR + .17%, 0.78%, due 06/20/25		     387,184    
    880,000     Omega Capital Europe Plc, Series GLOB-5A, Class A1, 144A,
3 mo. LIBOR + .25%, 0.83%, due 07/05/11		     783,200    
    Total Bank Loan Collateralized Debt Obligations     1,170,384    
        Business Loans — 0.2%  
    626,415     ACAS Business Loan Trust, Series 07-1A, Class A, 144A,
3 mo. LIBOR + .14%, 0.58%, due 08/16/19		     488,604    
    104,985     Bayview Commercial Asset Trust, Series 04-1, Class A, 144A,
1 mo. LIBOR + .36%, 0.63%, due 04/25/34		     78,738    
    69,896     Bayview Commercial Asset Trust, Series 04-3, Class A1, 144A,
1 mo. LIBOR + .37%, 0.64%, due 01/25/35		     48,927    
    356,156     Bayview Commercial Asset Trust, Series 05-4A, Class A2, 144A,
1 mo. LIBOR + .39%, 0.66%, due 01/25/36		     231,501    
    295,240     Bayview Commercial Asset Trust, Series 07-3, Class A1, 144A,
1 mo. LIBOR + .24%, 0.51%, due 07/25/37		     177,144    

 

See accompanying notes to the financial statements.


4


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Business Loans — continued  
    1,000,000     Bayview Commercial Asset Trust, Series 07-6A, Class A2, 144A,
1 mo. LIBOR + 1.30%, 1.57%, due 12/25/37		     645,000    
    91,395     Capitalsource Commercial Loan Trust, Series 06-1A, Class A1, 144A,
1 mo. LIBOR + .12%, 0.39%, due 08/22/16		     74,944    
    236,988     Capitalsource Commercial Loan Trust, Series 07-1A, Class A, 144A,
1 mo. LIBOR + .13%, 0.40%, due 03/20/17		     194,330    
    96,982     GE Business Loan Trust, Series 04-1, Class A, 144A, 1 mo. LIBOR + .29%,
0.56%, due 05/15/32		     66,917    
    141,301     GE Business Loan Trust, Series 05-2A, Class A, 144A, 1 mo. LIBOR + .24%,
0.51%, due 11/15/33		     87,607    
    900,000     GE Dealer Floorplan Master Trust, Series 06-4, Class A, 1 mo. LIBOR + .01%,
0.28%, due 10/20/11		     897,372    
    1,400,000     GE Dealer Floorplan Master Trust, Series 07-2, Class A, 1 mo. LIBOR + .01%,
0.28%, due 07/20/12		     1,378,440    
    268,108     Lehman Brothers Small Balance Commercial, Series 05-1A, Class A, 144A,
1 mo. LIBOR + .25%, 0.52%, due 02/25/30		     166,227    
    227,702     Lehman Brothers Small Balance Commercial, Series 05-2A, Class 1A, 144A,
1 mo. LIBOR + .25%, 0.52%, due 09/25/30		     136,621    
    100,215     Lehman Brothers Small Balance Commercial, Series 07-3A, Class 1A1, 144A,
1 mo. LIBOR + .65%, 0.92%, due 10/25/37		     87,187    
    800,000     Lehman Brothers Small Balance Commercial, Series 07-3A, Class 1A2, 144A,
1 mo. LIBOR + .85%, 1.12%, due 10/25/37		     504,000    
    800,000     Navistar Financial Dealer Note Master Trust, Series 05-1, Class A,
1 mo. LIBOR + .11%, 0.39%, due 02/25/13		     776,000    
    700,000     Textron Financial Floorplan Master Note, Series 07-AA, Class A, 144A,
1 mo. LIBOR + .06%, 0.33%, due 03/13/12		     455,000    
    9,796     The Money Store Business Loan Backed Trust, Series 99-1, Class AN,
1 mo. LIBOR + .50%, 0.77%, due 09/15/17		     8,327    
    Total Business Loans     6,502,886    
        CMBS — 0.3%  
    700,000     Citigroup/Deutsche Bank Commercial Mortgage, Series 05-CD1, Class A2FL,
1 mo. LIBOR + .12%, 0.39%, due 07/15/44		     490,000    
    1,100,000     Commercial Mortgage Pass-Through Certificates, Series 06-FL12, Class AJ,
144A, 1 mo. LIBOR + .13%, 0.40%, due 12/15/20		     605,000    
    900,000     GE Capital Commercial Mortgage Corp., Series 05-C4, Class A2, 5.31%,
due 11/10/45		     903,060    

 

See accompanying notes to the financial statements.


5


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        CMBS — continued  
    500,000     GE Capital Commercial Mortgage Corp., Series 06-C1, Class A2, 5.51%,
due 03/10/44		     502,250    
    124,417     Greenwich Capital Commercial Funding Corp., Series 06-FL4A, Class A1,
144A, 1 mo. LIBOR + .09%, 0.37%, due 11/05/21		     106,999    
    900,000     GS Mortgage Securities Corp., Series 06-GG6, Class A2, 5.51%, due 04/10/38     897,469    
    213,181     GS Mortgage Securities Corp., Series 07-EOP, Class A1, 144A,
1 mo. LIBOR + .09%, 0.37%, due 03/06/20		     185,467    
    300,000     GS Mortgage Securities Corp., Series 07-EOP, Class A2, 144A,
1 mo. LIBOR + .13%, 0.41%, due 03/06/20		     252,000    
    290,951     J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-FL1A,
Class A1B, 144A, 1 mo. LIBOR + .12%, 0.39%, due 02/15/20		     220,506    
    1,400,000     J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-LDP7,
Class A2, 6.05%, due 04/15/45		     1,411,346    
    108,810     Lehman Brothers Floating Rate Commercial, Series 06-LLFA, Class A1,
144A, 1 mo. LIBOR + .08%, 0.35%, due 09/15/21		     93,033    
    900,000     Merrill Lynch Mortgage Trust, Series 06-C1, Class A2, 5.79%, due 05/12/39     905,670    
    300,000     Morgan Stanley Capital I, Series 06-IQ11, Class A2, 5.69%, due 10/15/42     302,436    
    400,000     Morgan Stanley Capital I, Series 06-IQ11, Class A3, 5.91%, due 10/15/42     389,960    
    127,379     Morgan Stanley Dean Witter Capital I, Series 03-TOP9, Class A1, 3.98%,
due 11/13/36		     127,761    
    863,275     Wachovia Bank Commercial Mortgage Trust, Series 06-WL7A, Class A1,
144A, 1 mo. LIBOR + .09%, 0.36%, due 09/15/21		     621,558    
    Total CMBS     8,014,515    
        CMBS Collateralized Debt Obligations — 0.0%  
    500,000     American Capital Strategies Ltd. Commercial Real Estate CDO Trust,
Series 07-1A, Class A, 144A, 3 mo. LIBOR + .80%, 1.21%, due 11/23/52		     35,000    
    423,554     G-Force LLC, Series 05-RR2, Class A2, 144A, 5.16%, due 12/25/39     211,777    
    540,711     Guggenheim Structured Real Estate Funding, Series 05-2A, Class A, 144A,
1 mo. LIBOR + .32%, 0.59%, due 08/26/30		     189,249    
    800,000     Marathon Real Estate CDO, Series 06-1A, Class A1, 144A,
1 mo. LIBOR + .33%, 0.60%, due 05/25/46		     416,000    
    Total CMBS Collateralized Debt Obligations     852,026    

 

See accompanying notes to the financial statements.


6


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Collateralized Loan Obligations — 0.0%  
    239,969     Archimedes Funding IV (Cayman) Ltd., Series 4A, Class A1, 144A,
3 mo. LIBOR + .48%, 0.87%, due 02/25/13		     215,972    
        Credit Cards — 0.6%  
    1,900,000     American Express Credit Account Master Trust, Series 05-5, Class A,
1 mo. LIBOR + .04%, 0.31%, due 02/15/13		     1,890,740    
    700,000     American Express Credit Account Master Trust, Series 06-1, Class A,
1 mo. LIBOR + .03%, 0.30%, due 12/15/13		     687,969    
    300,000     American Express Issuance Trust, Series 07-1, Class A, 1 mo. LIBOR + .20%,
0.47%, due 09/15/11		     298,650    
    100,000     Bank of America Credit Card Trust, Series 06-A12, Class A12,
1 mo. LIBOR + .02%, 0.29%, due 03/15/14		     97,590    
    1,100,000     Cabela's Master Credit Card Trust, Series 08-4A, Class A2, 144A,
1 mo. LIBOR + 3.00%, 3.27%, due 09/15/14		     1,128,941    
    700,000     Capital One Multi-Asset Execution Trust, Series 04-A7, Class A7,
3 mo. LIBOR + .15%, 0.59%, due 06/16/14		     686,217    
    800,000     Capital One Multi-Asset Execution Trust, Series 06-A14, Class A,
1 mo. LIBOR + .01%, 0.28%, due 08/15/13		     788,000    
    200,000     Capital One Multi-Asset Execution Trust, Series 07-A4, Class A4,
1 mo. LIBOR + .03%, 0.30%, due 03/16/15		     191,000    
    500,000     Capital One Multi-Asset Execution Trust, Series 07-A6, Class A6,
1 mo. LIBOR + .07%, 0.34%, due 05/15/13		     496,780    
    600,000     Capital One Multi-Asset Execution Trust, Series 08-A6, Class A6,
1 mo. LIBOR + 1.10%, 1.37%, due 03/17/14		     595,500    
    1,300,000     Charming Shoppes Master Trust, Series 07-1A, Class A1, 144A,
1 mo. LIBOR + 1.25%, 1.52%, due 09/15/17		     1,201,057    
EUR     1,100,000     Citibank Credit Card Issuance Trust, Series 04-A2, Class A,
3 mo. EUR LIBOR + .10%, 0.95%, due 05/24/13		     1,494,863    
    1,300,000     Citibank OMNI Master Trust, Series 07-A9A, Class A9, 144A,
1 mo. LIBOR + 1.10%, 1.37%, due 12/23/13		     1,294,800    
    400,000     Discover Card Master Trust I, Series 05-4, Class A1, 1 mo. LIBOR + .06%,
0.33%, due 06/18/13		     394,376    
    500,000     Discover Card Master Trust I, Series 05-4, Class A2, 1 mo. LIBOR + .09%,
0.36%, due 06/16/15		     455,156    
    1,900,000     Discover Card Master Trust I, Series 06-2, Class A2, 1 mo. LIBOR + .03%,
0.30%, due 01/16/14		     1,857,778    
    100,000     Discover Card Master Trust I, Series 07-1, Class A, 1 mo. LIBOR + .01%,
0.28%, due 08/15/12		     99,562    

 

See accompanying notes to the financial statements.


7


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Credit Cards — continued  
    400,000     Discover Card Master Trust I, Series 96-4, Class A, 1 mo. LIBOR + .38%,
0.65%, due 10/16/13		     393,240    
    700,000     GE Capital Credit Card Master Note Trust, Series 05-1, Class A,
1 mo. LIBOR + .04%, 0.31%, due 03/15/13		     696,717    
    1,200,000     GE Capital Credit Card Master Note Trust, Series 07-3, Class A1,
1 mo. LIBOR + .01%, 0.28%, due 06/15/13		     1,185,600    
    1,300,000     Household Credit Card Master Note Trust I, Series 07-1, Class A,
1 mo. LIBOR + .05%, 0.32%, due 04/15/13		     1,279,688    
    600,000     Household Credit Card Master Note Trust I, Series 07-2, Class A,
1 mo. LIBOR + .55%, 0.82%, due 07/15/13		     588,000    
    400,000     MBNA Credit Card Master Note Trust, Series 04-A8, Class A8,
1 mo. LIBOR + .15%, 0.42%, due 01/15/14		     392,600    
    1,300,000     National City Credit Card Master Trust, Series 08-3, Class A,
1 mo. LIBOR + 1.80%, 2.07%, due 05/15/13		     1,261,000    
    400,000     World Financial Network Credit Card Master Trust, Series 06-A, Class A,
144A, 1 mo. LIBOR + .13%, 0.40%, due 02/15/17		     360,376    
    Total Credit Cards     19,816,200    
        Equipment Leases — 0.1%  
    286,595     CNH Equipment Trust, Series 07-B, Class A3B, 1 mo. LIBOR + .60%,
0.87%, due 10/17/11		     286,698    
    400,000     CNH Equipment Trust, Series 08-A, Class A4B, 1 mo. LIBOR + 1.95%,
2.23%, due 08/15/14		     405,240    
    903,397     GE Equipment Midticket LLC, Series 07-1, Class A3B, 1 mo. LIBOR + .25%,
0.52%, due 06/14/11		     900,010    
    Total Equipment Leases     1,591,948    
        Insurance Premiums — 0.0%  
    1,000,000     AICCO Premium Finance Master Trust, Series 07-AA, Class A, 144A,
1 mo. LIBOR + .05%, 0.32%, due 12/15/11		     960,600    
        Insured Auto Financing — 0.3%  
    300,000     Aesop Funding II LLC, Series 05-1A, Class A3, 144A, MBIA,
1 mo. LIBOR + .12%, 0.39%, due 04/20/11		     293,808    
    230,976     AmeriCredit Automobile Receivables Trust, Series 05-BM, Class A4, MBIA,
1 mo. LIBOR + .08%, 0.36%, due 05/06/12		     228,236    

 

See accompanying notes to the financial statements.


8


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Auto Financing — continued  
    800,000     AmeriCredit Automobile Receivables Trust, Series 07-AX, Class A4, XL,
1 mo. LIBOR + .04%, 0.32%, due 10/06/13		     768,240    
    500,000     AmeriCredit Automobile Receivables Trust, Series 07-BF, Class A4, FSA,
1 mo. LIBOR + .05%, 0.33%, due 12/06/13		     454,300    
    192,831     AmeriCredit Automobile Receivables Trust, Series 07-CM, Class A3B,
MBIA, 1 mo. LIBOR + .03%, 0.31%, due 05/07/12		     188,195    
    500,000     AmeriCredit Automobile Receivables Trust, Series 07-DF, Class A4B, FSA,
1 mo. LIBOR + .80%, 1.08%, due 06/06/14		     434,070    
    800,000     AmeriCredit Prime Automobile Receivable Trust, Series 07-2M, Class A4B,
MBIA, 1 mo. LIBOR + .50%, 0.78%, due 03/08/16		     725,111    
    660,870     Capital One Auto Finance Trust, Series 06-A, Class A4, AMBAC,
1 mo. LIBOR + .01%, 0.28%, due 12/15/12		     637,145    
    741,466     Capital One Auto Finance Trust, Series 06-B, Class A4, MBIA,
1 mo. LIBOR + .02%, 0.29%, due 07/15/13		     720,898    
    200,000     Capital One Auto Finance Trust, Series 07-A, Class A4, AMBAC,
1 mo. LIBOR + .02%, 0.29%, due 11/15/13		     189,800    
    596,354     Capital One Auto Finance Trust, Series 07-C, Class A3B, FGIC,
1 mo. LIBOR + .51%, 0.78%, due 04/16/12		     589,699    
    100,000     Hertz Vehicle Financing LLC, Series 05-2A, Class A3, 144A, AMBAC,
1 mo. LIBOR + .20%, 0.47%, due 02/25/11		     98,697    
    300,000     Hertz Vehicle Financing LLC, Series 05-2A, Class A5, 144A, AMBAC,
1 mo. LIBOR + .25%, 0.52%, due 11/25/11		     284,976    
    1,021,445     Santander Drive Auto Receivables Trust, Series 07-1, Class A4, FGIC,
1 mo. LIBOR + .05%, 0.32%, due 09/15/14		     956,501    
    800,000     Santander Drive Auto Receivables Trust, Series 07-3, Class A4B, FGIC,
1 mo. LIBOR + .65%, 0.92%, due 10/15/14		     744,560    
    1,700,000     Triad Auto Receivables Owner Trust, Series 07-B, Class A4B, FSA,
1 mo. LIBOR + 1.20%, 1.48%, due 07/14/14		     1,547,000    
    96,299     UPFC Auto Receivables Trust, Series 06-B, Class A3, AMBAC, 5.01%,
due 08/15/12		     96,253    
    Total Insured Auto Financing     8,957,489    
        Insured Business Loans — 0.0%  
    316,765     CNL Commercial Mortgage Loan Trust, Series 03-2A, Class A1, 144A,
AMBAC, 1 mo. LIBOR + .44%, 0.71%, due 10/25/30		     205,897    

 

See accompanying notes to the financial statements.


9


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured High Yield Collateralized Debt Obligations — 0.0%  
    442,873     GSC Partners CDO Fund Ltd., Series 03-4A, Class A3, 144A, AMBAC,
3 mo. LIBOR + .46%, 0.97%, due 12/16/15		     372,013    
    128,575     GSC Partners CDO Fund Ltd., Series 2A, Class A, 144A, FSA,
6 mo. LIBOR + .52%, 1.76%, due 05/22/13		     96,431    
    Total Insured High Yield Collateralized Debt Obligations     468,444    
        Insured Other — 0.1%  
    800,000     DB Master Finance LLC, Series 06-1, Class A2, 144A, AMBAC, 5.78%,
due 06/20/31		     739,441    
    1,500,000     Dominos Pizza Master Issuer LLC, Series 07-1, Class A2, 144A, MBIA,
5.26%, due 04/25/37		     1,204,252    
    806,680     Henderson Receivables LLC, Series 06-3A, Class A1, 144A, MBIA,
1 mo. LIBOR + .20%, 0.47%, due 09/15/41		     609,794    
    813,498     Henderson Receivables LLC, Series 06-4A, Class A1, 144A, MBIA,
1 mo. LIBOR + .20%, 0.47%, due 12/15/41		     619,332    
    601,316     TIB Card Receivables Fund, 144A, FGIC, 3 mo. LIBOR + .25%, 0.83%,
due 01/05/14		     541,184    
    100,000     Toll Road Investment Part II, Series B, 144A, MBIA, Zero Coupon,
due 02/15/30		     17,245    
    900,000     Toll Road Investment Part II, Series C, 144A, MBIA, Zero Coupon,
due 02/15/37		     85,041    
    Total Insured Other     3,816,289    
        Insured Residential Asset-Backed Securities (United States) — 0.0%  
    98,258     Ameriquest Mortgage Securities, Inc., Series 04-R6, Class A1, XL,
1 mo. LIBOR + .21%, 0.48%, due 07/25/34		     43,234    
    122,996     Citigroup Mortgage Loan Trust, Inc., Series 03-HE3, Class A, AMBAC,
1 mo. LIBOR + .38%, 0.65%, due 12/25/33		     67,648    
    32,449     Quest Trust, Series 04-X1, Class A, 144A, AMBAC, 1 mo. LIBOR + .33%,
0.60%, due 03/25/34		     17,847    
    808,374     Residential Asset Mortgage Products, Inc., Series 05-RS9, Class AI3, FGIC,
1 mo. LIBOR + .22%, 0.49%, due 11/25/35		     363,768    
    Total Insured Residential Asset-Backed Securities (United States)     492,497    

 

See accompanying notes to the financial statements.


10


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Residential Mortgage-Backed Securities (United States) — 0.0%  
    17,837     Chevy Chase Mortgage Funding Corp., Series 03-4A, Class A1, 144A,
AMBAC, 1 mo. LIBOR + .34%, 0.61%, due 10/25/34		     9,275    
    41,271     Chevy Chase Mortgage Funding Corp., Series 04-1A, Class A2, 144A,
AMBAC, 1 mo. LIBOR + .33%, 0.60%, due 01/25/35		     19,810    
    462,770     Countrywide Home Equity Loan Trust, Series 07-E, Class A, MBIA,
1 mo. LIBOR + .15%, 0.42%, due 06/15/37		     92,276    
    283,546     GMAC Mortgage Corp. Loan Trust, Series 04-HE3, Class A3, FSA,
1 mo. LIBOR + .23%, 0.50%, due 10/25/34		     130,545    
    17,499     GreenPoint Home Equity Loan Trust, Series 04-1, Class A, AMBAC,
1 mo. LIBOR + .23%, 0.73%, due 07/25/29		     7,647    
    22,023     GreenPoint Home Equity Loan Trust, Series 04-4, Class A, AMBAC,
1 mo. LIBOR + .28%, 0.83%, due 08/15/30		     12,335    
    39,754     Lehman ABS Corp., Series 04-2, Class A, AMBAC, 1 mo. LIBOR + .22%,
0.71%, due 06/25/34		     13,119    
    9,587     Residential Funding Mortgage Securities II, Series 03-HS1, Class AII, FGIC,
1 mo. LIBOR + .29%, 0.56%, due 12/25/32		     4,170    
    193,679     SBI Heloc Trust, Series 05-HE1, Class 1A, 144A, FSA, 1 mo. LIBOR + .19%,
0.46%, due 11/25/35		     92,686    
    70,979     Wachovia Asset Securitization, Inc., Series 02-HE1, Class A, AMBAC,
1 mo. LIBOR + .37%, 0.64%, due 09/27/32		     36,334    
    62,684     Wachovia Asset Securitization, Inc., Series 04-HE1, Class A, MBIA,
1 mo. LIBOR + .22%, 0.49%, due 06/25/34		     30,179    
    Total Insured Residential Mortgage-Backed Securities (United States)     448,376    
        Insured Time Share — 0.0%  
    26,861     Cendant Timeshare Receivables Funding LLC, Series 04-1A, Class A2, 144A,
MBIA, 1 mo. LIBOR + .18%, 0.45%, due 05/20/16		     21,896    
    74,603     Cendant Timeshare Receivables Funding LLC, Series 05-1A, Class A2, 144A,
FGIC, 1 mo. LIBOR + .18%, 0.45%, due 05/20/17		     67,888    
    138,725     Sierra Receivables Funding Co., Series 06-1A, Class A2, 144A, MBIA,
1 mo. LIBOR + .15%, 0.42%, due 05/20/18		     113,787    
    167,002     Sierra Receivables Funding Co., Series 07-1A, Class A2, 144A, FGIC,
1 mo. LIBOR + .15%, 0.42%, due 03/20/19		     145,292    
    457,165     Sierra Receivables Funding Co., Series 07-2A, Class A2, 144A, MBIA,
1 mo. LIBOR + 1.00%, 1.27%, due 09/20/19		     283,543    
    Total Insured Time Share     632,406    

 

See accompanying notes to the financial statements.


11


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Insured Transportation — 0.0%  
    186,667     GE Seaco Finance SRL, Series 04-1A, Class A, 144A, AMBAC,
1 mo. LIBOR + .30%, 0.57%, due 04/17/19		     143,733    
        Investment Grade Corporate Collateralized Debt Obligations — 0.3%  
    1,000,000     Counts Trust, Series 04-2, 144A, 3 mo. LIBOR + .95%, 1.56%, due 09/20/09     1,002,030    
    1,000,000     Morgan Stanley ACES SPC, Series 04-15, Class I, 144A,
3 mo. LIBOR + .45%, 1.06%, due 12/20/09		     950,500    
    1,000,000     Morgan Stanley ACES SPC, Series 04-15, Class II, 144A,
3 mo. LIBOR + .65%, 1.26%, due 12/20/09		     931,500    
    1,000,000     Morgan Stanley ACES SPC, Series 05-10, Class A1, 144A,
3 mo. LIBOR + .52%, 1.13%, due 03/20/10		     876,500    
    1,000,000     Morgan Stanley ACES SPC, Series 05-15, Class A, 144A,
3 mo. LIBOR + .40%, 1.01%, due 12/20/10		     841,500    
    1,000,000     Morgan Stanley ACES SPC, Series 05-2A, Class A, 144A,
3 mo. LIBOR + .45%, 1.06%, due 03/20/10		     909,000    
    1,000,000     Morgan Stanley ACES SPC, Series 06-13A, Class A, 144A,
3 mo. LIBOR + .29%, 0.90%, due 06/20/13		     544,500    
    1,000,000     Prism Orso Trust, Series 04-MAPL, Class CERT, 144A,
3 mo. LIBOR + .70%, 1.41%, due 08/01/11		     850,200    
    1,000,000     Salisbury International Investments Ltd., 3 mo. LIBOR + .42%, 1.03%,
due 06/22/10		     718,000    
    Total Investment Grade Corporate Collateralized Debt Obligations     7,623,730    
        Residential Asset-Backed Securities (United States) — 0.4%  
    37,311     Accredited Mortgage Loan Trust, Series 04-4, Class A1B,
1 mo. LIBOR + .39%, 0.66%, due 01/25/35		     22,200    
    51,539     Accredited Mortgage Loan Trust, Series 07-1, Class A1, 1 mo. LIBOR + .05%,
0.32%, due 02/25/37		     48,885    
    63,082     ACE Securities Corp., Series 05-ASP1, Class A2C, 1 mo. LIBOR + .27%,
0.54%, due 09/25/35		     60,874    
    108,662     ACE Securities Corp., Series 06-ASL1, Class A, 1 mo. LIBOR + .14%,
0.41%, due 02/25/36		     17,332    
    228,290     ACE Securities Corp., Series 06-ASP2, Class A2B, 1 mo. LIBOR + .14%,
0.41%, due 03/25/36		     210,027    
    300,000     ACE Securities Corp., Series 06-ASP2, Class A2C, 1 mo. LIBOR + .18%,
0.45%, due 03/25/36		     126,000    

 

See accompanying notes to the financial statements.


12


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    286,549     ACE Securities Corp., Series 06-ASP4, Class A2B, 1 mo. LIBOR + .10%,
0.37%, due 08/25/36		     214,912    
    700,000     ACE Securities Corp., Series 06-ASP5, Class A2C, 1 mo. LIBOR + .18%,
0.45%, due 10/25/36		     182,000    
    683,003     ACE Securities Corp., Series 06-CW1, Class A2B, 1 mo. LIBOR + .10%,
0.37%, due 07/25/36		     512,252    
    200,000     ACE Securities Corp., Series 06-HE2, Class A2C, 1 mo. LIBOR + .16%,
0.43%, due 05/25/36		     66,000    
    252,851     ACE Securities Corp., Series 06-HE3, Class A2B, 1 mo. LIBOR + .09%,
0.36%, due 06/25/36		     189,639    
    400,000     ACE Securities Corp., Series 06-OP1, Class A2C, 1 mo. LIBOR + .15%,
0.42%, due 04/25/36		     156,000    
    141,220     ACE Securities Corp., Series 06-SL1, Class A, 1 mo. LIBOR + .16%, 0.43%,
due 09/25/35		     17,476    
    297,235     ACE Securities Corp., Series 06-SL3, Class A1, 1 mo. LIBOR + .10%, 0.37%,
due 06/25/36		     9,660    
    380,398     ACE Securities Corp., Series 06-SL3, Class A2, 1 mo. LIBOR + .17%, 0.44%,
due 06/25/36		     6,657    
    285,943     ACE Securities Corp., Series 07-HE1, Class A2A, 1 mo. LIBOR + .09%,
0.36%, due 01/25/37		     135,823    
    254,776     ACE Securities Corp., Series 07-WM1, Class A2A, 1 mo. LIBOR + .07%,
0.34%, due 11/25/36		     121,019    
    383,422     Alliance Bancorp Trust, Series 07-S1, Class A1, 144A, 1 mo. LIBOR + .20%,
0.47%, due 05/25/37		     46,394    
    130,475     Argent Securities, Inc., Series 04-W8, Class A5, 1 mo. LIBOR + .52%, 0.79%,
due 05/25/34		     97,653    
    1,600,000     Argent Securities, Inc., Series 06-M1, Class A2C, 1 mo. LIBOR + .15%,
0.42%, due 07/25/36		     378,000    
    385,474     Argent Securities, Inc., Series 06-M2, Class A2B, 1 mo. LIBOR + .11%,
0.38%, due 09/25/36		     231,284    
    440,115     Argent Securities, Inc., Series 06-W2, Class A2B, 1 mo. LIBOR + .19%,
0.46%, due 03/25/36		     272,872    
    300,000     Argent Securities, Inc., Series 06-W5, Class A2C, 1 mo. LIBOR + .15%,
0.42%, due 06/25/36		     99,609    
    600,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3B,
1 mo. LIBOR + .11%, 0.38%, due 10/25/36		     560,160    
    300,000     Asset Backed Funding Certificates, Series 06-OPT2, Class A3C,
1 mo. LIBOR + .15%, 0.42%, due 10/25/36		     119,190    

 

See accompanying notes to the financial statements.


13


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    28,363     Asset Backed Funding Certificates, Series 06-OPT3, Class A3A,
1 mo. LIBOR + .06%, 0.33%, due 11/25/36		     27,512    
    896,868     Asset Backed Funding Certificates, Series 07-NC1, Class A1, 144A,
1 mo. LIBOR + .22%, 0.49%, due 05/25/37		     644,041    
    244,019     Bayview Financial Acquisition Trust, Series 04-B, Class A1, 144A,
1 mo. LIBOR + .50%, 1.26%, due 05/28/39		     171,789    
    244,019     Bayview Financial Acquisition Trust, Series 04-B, Class A2, 144A,
1 mo. LIBOR + .65%, 1.56%, due 05/28/39		     146,411    
    359,431     Bayview Financial Acquisition Trust, Series 05-A, Class A1, 144A,
1 mo. LIBOR + .50%, 1.26%, due 02/28/40		     174,468    
    161,914     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A1,
1 mo. LIBOR + .11%, 0.38%, due 11/25/36		     113,103    
    300,000     Bear Stearns Asset Backed Securities, Inc., Series 07-AQ1, Class A2,
1 mo. LIBOR + .20%, 0.47%, due 11/25/36		     59,727    
    187,972     Bear Stearns Mortgage Funding Trust, Series 07-SL2, Class 1A,
1 mo. LIBOR + .16%, 0.43%, due 02/25/37		     17,178    
    124,366     Carrington Mortgage Loan Trust, Series 07-FRE1, Class A1,
1 mo. LIBOR + .12%, 0.39%, due 02/25/37		     113,826    
    1,300,000     Carrington Mortgage Loan Trust, Series 07-FRE1, Class A2,
1 mo. LIBOR + .20%, 0.47%, due 02/25/37		     796,658    
    500,000     Centex Home Equity, Series 06-A, Class AV3, 1 mo. LIBOR + .16%, 0.43%,
due 06/25/36		     350,000    
    10,187     Chase Funding Mortgage Loan Trust, Series 03-3, Class 2A2,
1 mo. LIBOR + .27%, 0.81%, due 04/25/33		     6,232    
    6,079     Citigroup Mortgage Loan Trust, Inc., Series 04-OPT1, Class A1B,
1 mo. LIBOR + .41%, 0.68%, due 10/25/34		     2,735    
    400,000     Citigroup Mortgage Loan Trust, Inc., Series 06-HE3, Class A2C,
1 mo. LIBOR + .16%, 0.43%, due 12/25/36		     124,000    
    1,000,000     Countrywide Asset-Backed Certificates, Series 06-BC3, Class 2A2,
1 mo. LIBOR + .14%, 0.41%, due 02/25/37		     546,100    
    274,759     Countrywide Asset-Backed Certificates, Series 06-BC5, Class 2A1,
1 mo. LIBOR + .08%, 0.35%, due 03/25/37		     256,598    
    113,925     Credit-Based Asset Servicing & Securitization, Series 06-RP1, Class A1,
144A, 1 mo. LIBOR + .11%, 0.38%, due 04/25/36		     105,060    
    18,434     Equity One ABS, Inc., Series 04-1, Class AV2, 1 mo. LIBOR + .30%, 0.57%,
due 04/25/34		     7,725    
    500,000     First Franklin Mortgage Loan Asset Backed Certificates, Series 06-FF5,
Class 2A3, 1 mo. LIBOR + .16%, 0.43%, due 04/25/36		     202,500    

 

See accompanying notes to the financial statements.


14


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    69,418     First Franklin Mortgage Loan Asset Backed Certificates, Series 06-FF18,
Class A2A, 1 mo. LIBOR + .07%, 0.34%, due 12/25/37		     67,791    
    159,885     Fremont Home Loan Trust, Series 06-A, Class 1A2, 1 mo. LIBOR + .20%,
0.46%, due 05/25/36		     81,341    
    128,612     Fremont Home Loan Trust, Series 06-B, Class 2A2, 1 mo. LIBOR + .10%,
0.37%, due 08/25/36		     83,557    
    600,000     Fremont Home Loan Trust, Series 06-B, Class 2A3, 1 mo. LIBOR + .16%,
0.43%, due 08/25/36		     171,600    
    149,442     Household Home Equity Loan Trust, Series 05-2, Class A2,
1 mo. LIBOR + .31%, 0.58%, due 01/20/35		     116,004    
    135,522     Household Home Equity Loan Trust, Series 05-3, Class A2,
1 mo. LIBOR + .29%, 0.56%, due 01/20/35		     103,166    
    422,835     Household Home Equity Loan Trust, Series 06-1, Class A1,
1 mo. LIBOR + .16%, 0.43%, due 01/20/36		     341,439    
    1,000,000     J.P. Morgan Mortgage Acquisition Corp., Series 06-WMC4, Class A3,
1 mo. LIBOR + .12%, 0.39%, due 12/25/36		     286,484    
    145,988     Master Asset-Backed Securities Trust, Series 05-FRE1, Class A4,
1 mo. LIBOR + .25%, 0.52%, due 10/25/35		     127,192    
    233,576     Master Asset-Backed Securities Trust, Series 06-AM3, Class A2,
1 mo. LIBOR + .13%, 0.40%, due 10/25/36		     217,665    
    700,000     Master Asset-Backed Securities Trust, Series 06-FRE2, Class A4,
1 mo. LIBOR + .15%, 0.42%, due 03/25/36		     247,947    
    400,000     Master Asset-Backed Securities Trust, Series 06-HE2, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 06/25/36		     116,392    
    800,000     Master Asset-Backed Securities Trust, Series 06-HE3, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 08/25/36		     242,744    
    500,000     Master Asset-Backed Securities Trust, Series 06-NC3, Class A4,
1 mo. LIBOR + .16%, 0.43%, due 10/25/36		     144,165    
    91,343     Master Asset-Backed Securities Trust, Series 06-WMC1, Class A2,
1 mo. LIBOR + .11%, 0.38%, due 02/25/36		     90,715    
    225,336     Master Second Lien Trust, Series 06-1, Class A, 1 mo. LIBOR + .16%, 0.43%,
due 03/25/36		     7,323    
    305,806     Merrill Lynch Mortgage Investors, Series 07-HE2, Class A2A,
1 mo. LIBOR + .12%, 0.39%, due 02/25/37		     158,652    
    132,567     Morgan Stanley Capital, Inc., Series 04-SD1, Class A, 1 mo. LIBOR + .40%,
0.67%, due 08/25/34		     86,169    
    1,000,000     Morgan Stanley Capital, Inc., Series 07-HE4, Class A2C,
1 mo. LIBOR + .23%, 0.50%, due 02/25/37		     300,000    

 

See accompanying notes to the financial statements.


15


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Asset-Backed Securities (United States) — continued  
    372,407     Morgan Stanley Home Equity Loans, Series 07-2, Class A1,
1 mo. LIBOR + .10%, 0.37%, due 04/25/37		     290,850    
    300,000     Morgan Stanley IXIS Real Estate Capital Trust, Series 06-2, Class A3,
1 mo. LIBOR + .15%, 0.42%, due 11/25/36		     81,000    
    273,824     People's Choice Home Loan Securities Trust, Series 05-4, Class 1A2,
1 mo. LIBOR + .26%, 0.53%, due 12/25/35		     178,921    
    375,830     RAAC Series Trust, Series 06-SP1, Class A2, 1 mo. LIBOR + .19%, 0.46%,
due 09/25/45		     287,322    
    45,822     Residential Asset Mortgage Products, Inc., Series 05-RS4, Class A3,
1 mo. LIBOR + .23%, 0.50%, due 04/25/35		     43,531    
    128,456     Residential Asset Mortgage Products, Inc., Series 05-RS8, Class A2,
1 mo. LIBOR + .29%, 0.56%, due 10/25/33		     110,140    
    27,313     Residential Asset Mortgage Products, Inc., Series 06-RZ4, Class A1,
1 mo. LIBOR + .09%, 0.36%, due 10/25/36		     27,142    
    324,310     Residential Asset Securities Corp., Series 05-KS12, Class A2,
1 mo. LIBOR + .25%, 0.52%, due 01/25/36		     275,663    
    227,101     Residential Asset Securities Corp., Series 07-KS3, Class AI1,
1 mo. LIBOR + .11%, 0.38%, due 04/25/37		     207,920    
    9,319     Saxon Asset Securities Trust, Series 04-1, Class A, 1 mo. LIBOR + .27%,
0.81%, due 03/25/35		     4,336    
    135,921     Securitized Asset Backed Receivables LLC, Series 06-NC1, Class A2,
1 mo. LIBOR + .16%, 0.43%, due 03/25/36		     101,940    
    113,307     Security National Mortgage Loan Trust, Series 06-2A, Class A1, 144A,
1 mo. LIBOR + .29%, 0.56%, due 10/25/36		     94,952    
    71,475     SG Mortgage Securities Trust, Series 05-OPT1, Class A2,
1 mo. LIBOR + .26%, 0.53%, due 10/25/35		     64,743    
    97,008     Soundview Home Equity Loan Trust, Series 07-NS1, Class A1,
1 mo. LIBOR + .12%, 0.39%, due 01/25/37		     79,576    
    500,000     Specialty Underwriting & Residential Finance, Series 06-BC3, Class A2C,
1 mo. LIBOR + .15%, 0.42%, due 06/25/37		     142,800    
    255,516     Structured Asset Investment Loan Trust, Series 06-1, Class A3,
1 mo. LIBOR + .20%, 0.47%, due 01/25/36		     148,199    
    196,239     Structured Asset Securities Corp., Series 05-S6, Class A2,
1 mo. LIBOR + .29%, 0.56%, due 11/25/35		     41,210    
    610,069     Yale Mortgage Loan Trust, Series 07-1, Class A, 144A,
1 mo. LIBOR + .40%, 0.67%, due 06/25/37		     156,788    
    Total Residential Asset-Backed Securities (United States)     13,094,960    

 

See accompanying notes to the financial statements.


16


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (Australian) — 0.1%  
    110,966     Australian Mortgage Securities II, Series G3, Class A1A,
3 mo. LIBOR + .21%, 0.74%, due 01/10/35		     97,095    
    291,951     Crusade Global Trust, Series 06-1, Class A1, 144A, 3 mo. LIBOR + .06%,
0.57%, due 07/20/38		     272,315    
    468,763     Crusade Global Trust, Series 07-1, Class A1, 3 mo. LIBOR + .06%, 0.57%,
due 04/19/38		     425,702    
    102,192     Interstar Millennium Trust, Series 03-3G, Class A2, 3 mo. LIBOR + .25%,
1.10%, due 09/27/35		     81,142    
    816,840     Interstar Millennium Trust, Series 04-2G, Class A, 3 mo. LIBOR + .20%,
1.03%, due 03/14/36		     659,043    
    70,525     Interstar Millennium Trust, Series 05-1G, Class A, 3 mo. LIBOR + .12%,
0.75%, due 12/08/36		     57,947    
    92,148     Interstar Millennium Trust, Series 06-2GA, Class A2, 144A,
3 mo. LIBOR + .08%, 0.46%, due 05/27/38		     69,264    
    52,483     Medallion Trust, Series 05-1G, Class A1, 3 mo. LIBOR + .08%, 0.54%,
due 05/10/36		     49,344    
    344,729     Medallion Trust, Series 06-1G, Class A1, 3 mo. LIBOR + .05%, 0.68%,
due 06/14/37		     318,877    
    425,188     National RMBS Trust, Series 06-3, Class A1, 144A, 3 mo. LIBOR + .07%,
0.58%, due 10/20/37		     369,458    
    472,600     Puma Finance Ltd., Series G5, Class A1, 144A, 3 mo. LIBOR + .07%, 0.49%,
due 02/21/38		     378,080    
    570,083     Superannuation Members Home Loans Global Fund, Series 07-1, Class A1,
3 mo. LIBOR + .06%, 0.70%, due 06/12/40		     517,433    
    26,214     Superannuation Members Home Loans Global Fund, Series 6, Class A,
3 mo. LIBOR + .16%, 0.62%, due 11/09/35		     23,099    
    68,627     Superannuation Members Home Loans Global Fund, Series 7, Class A1,
3 mo. LIBOR + .14%, 0.77%, due 03/09/36		     64,808    
    61,249     Superannuation Members Home Loans Global Fund, Series 8, Class A1,
3 mo. LIBOR + .07%, 0.58%, due 01/12/37		     52,790    
    402,794     Westpac Securitization Trust, Series 07-1G, Class A2A, 3 mo. LIBOR + .05%,
0.47%, due 05/21/38		     343,608    
    Total Residential Mortgage-Backed Securities (Australian)     3,780,005    

 

See accompanying notes to the financial statements.


17


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (European) — 0.2%  
    430,556     Aire Valley Mortgages, Series 06-1A, Class 1A, 144A, 3 mo. LIBOR + .11%,
0.72%, due 09/20/66		     215,278    
    500,000     Aire Valley Mortgages, Series 07-1A, Class 1A2, 144A, 3 mo. LIBOR + .09%,
0.70%, due 03/20/30		     250,000    
    1,100,000     Brunel Residential Mortgages, Series 07-1A, Class A4C, 144A,
3 mo. LIBOR + .10%, 0.61%, due 01/13/39		     965,594    
    89,985     Gracechurch Mortgage Funding Plc, Series 1A, Class A2B, 144A,
3 mo. LIBOR + .07%, 0.58%, due 10/11/41		     84,911    
    200,498     Granite Master Issuer Plc, Series 06-2, Class A4, 1 mo. LIBOR + .04%,
0.31%, due 12/20/54		     156,389    
    108,345     Granite Mortgages Plc, Series 04-3, Class 2A1, 3 mo. LIBOR + .14%, 0.75%,
due 09/20/44		     80,175    
    579,065     Kildare Securities Ltd., Series 07-1A, Class A2, 144A, 3 mo. LIBOR + .06%,
0.71%, due 12/10/43		     507,347    
    27,078     Leek Finance Plc, Series 14A, Class A2B, 144A, 3 mo. LIBOR + .18%,
0.79%, due 09/21/36		     25,394    
    103,775     Leek Finance Plc, Series 15A, Class AB, 144A, 3 mo. LIBOR + .14%, 0.75%,
due 03/21/37		     91,371    
    101,088     Leek Finance Plc, Series 17A, Class A2B, 144A, 3 mo. LIBOR + .14%, 0.75%,
due 12/21/37		     78,833    
    207,063     Paragon Mortgages Plc, Series 7A, Class A1A, 144A, 3 mo. LIBOR + .21%,
0.65%, due 05/15/34		     136,173    
    330,420     Paragon Mortgages Plc, Series 12A, Class A2C, 144A, 3 mo. LIBOR + .11%,
0.55%, due 11/15/38		     185,465    
    231,659     Paragon Mortgages Plc, Series 14A, Class A2C, 144A, 3 mo. LIBOR + .10%,
0.73%, due 09/15/39		     119,934    
    1,300,000     Pendeford Master Issuer Plc, Series 07-1A, Class 3A, 144A,
3 mo. LIBOR + .10%, 0.56%, due 02/12/16		     1,222,000    
    1,000,000     Permanent Master Issuer Plc, Series 06-1, Class 5A, 3 mo. LIBOR + .11%,
0.62%, due 07/15/33		     795,000    
    200,000     Permanent Master Issuer Plc, Series 07-1, Class 4A, 3 mo. LIBOR + .08%,
0.59%, due 10/15/33		     175,112    
    Total Residential Mortgage-Backed Securities (European)     5,088,976    

 

See accompanying notes to the financial statements.


18


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($)   Description   Value ($)  
        Residential Mortgage-Backed Securities (United States) — 0.0%  
    27,731     Chevy Chase Mortgage Funding Corp., Series 04-3A, Class A2, 144A,
1 mo. LIBOR + .30%, 0.57%, due 08/25/35		     13,311    
    45,573     GreenPoint Mortgage Funding Trust, Series 05-HE4, Class 2A3C,
1 mo. LIBOR + .25%, 0.52%, due 07/25/30		     39,400    
    103,154     Mellon Residential Funding Corp., Series 04-TBC1, Class A, 144A,
1 mo. LIBOR + .25%, 0.51%, due 02/26/34		     69,935    
    Total Residential Mortgage-Backed Securities (United States)     122,646    
        Student Loans — 0.1%  
    400,000     College Loan Corp. Trust, Series 06-1, Class A2, 3 mo. LIBOR + .02%,
0.52%, due 04/25/22		     398,500    
    148,000     College Loan Corp. Trust, Series 07-1, Class A1, 3 mo. LIBOR + .01%,
0.51%, due 01/25/23		     147,075    
    700,000     College Loan Corp. Trust, Series 07-2, Class A1, 3 mo. LIBOR + .25%,
0.75%, due 01/25/24		     697,594    
    126,835     Goal Capital Funding Trust, Series 06-1, Class A1, 3 mo. LIBOR, 0.39%,
due 08/25/20		     125,836    
    146,488     Goal Capital Funding Trust, Series 07-1, Class A1, 3 mo. LIBOR + .02%,
0.63%, due 06/25/21		     144,085    
    13,357     Keycorp Student Loan Trust, Series 05-A, Class 2A1, 3 mo. LIBOR + .05%,
0.65%, due 09/27/21		     13,312    
    100,425     Montana Higher Education Student Assistance Corp., Series 05-1, Class A,
3 mo. LIBOR + .04%, 0.65%, due 06/20/15		     99,803    
    312,737     National Collegiate Student Loan Trust, Series 06-1, Class A2,
1 mo. LIBOR + .14%, 0.41%, due 08/25/23		     289,285    
    194,684     National Collegiate Student Loan Trust, Series 06-A, Class A1, 144A,
1 mo. LIBOR + .08%, 0.35%, due 08/26/19		     189,330    
    400,000     Nelnet Student Loan Trust, Series 05-2, Class A4, 3 mo. LIBOR + .08%,
0.69%, due 12/23/19		     390,336    
    367,528     SLM Student Loan Trust, Series 07-A, Class A1, 3 mo. LIBOR + .03%,
0.66%, due 09/15/22		     334,450    
    Total Student Loans     2,829,606    

 

See accompanying notes to the financial statements.


19


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($) /
Shares		   Description   Value ($)  
        Time Share — 0.0%  
    232,854     Sierra Receivables Funding Co., Series 08-1A, Class A2, 144A,
1 mo. LIBOR + 4.00%, 4.27%, due 02/20/20		     227,615    
    Total Asset-Backed Securities     102,706,527    
        Corporate Debt — 0.0%  
    598,000     Health Care Property Investors, Inc., Series G, MTN, 5.63%, due 02/28/13     564,093    
        U.S. Government Agency — 0.1%  
    234,100     Agency for International Development Floater (Support of C.A.B.E.I),
6 mo. U.S. Treasury Bill + .40%, 0.66%, due 10/01/12 (a) 		     227,811    
    168,317     Agency for International Development Floater (Support of Honduras),
3 mo. U.S. Treasury Bill x 117%, 0.21%, due 10/01/11 (a) 		     164,286    
    945,000     Agency for International Development Floater (Support of India),
3 mo. LIBOR + .10%, 0.58%, due 02/01/27 (a) 		     800,926    
    628,867     Agency for International Development Floater (Support of Jamaica),
6 mo. U.S. Treasury Bill + 0.75%, 1.01%, due 03/30/19 (a) 		     589,394    
    74,879     Agency for International Development Floater (Support of Peru), Series B,
6 mo. U.S. Treasury Bill +.35%, 0.61%, due 05/01/14 (a) 		     71,761    
    500,001     Agency for International Development Floater (Support of Zimbabwe),
3 mo. U.S. Treasury Bill x 115%, 0.20%, due 01/01/12 (a) 		     485,456    
    Total U.S. Government Agency     2,339,634    
    TOTAL DEBT OBLIGATIONS (COST $102,611,141)     105,610,254    
        PREFERRED STOCKS — 0.0%  
        Banking — 0.0%  
      1,000     Home Ownership Funding 2 Preferred 144A, 1.00% (a)      90,000    
    TOTAL PREFERRED STOCKS (COST $158,808)     90,000    

 

See accompanying notes to the financial statements.


20


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        MUTUAL FUNDS — 96.7%  
        Affiliated Issuers — 96.7%  
      61,151,098     GMO Alpha Only Fund, Class IV     304,532,467    
    6,066,883     GMO Asset Allocation Bond Fund, Class VI     155,736,880    
    25,631,051     GMO Domestic Bond Fund, Class VI     166,858,142    
    1,431,039     GMO Emerging Country Debt Fund, Class IV     11,019,004    
    22,114,764     GMO Emerging Markets Fund, Class VI     235,522,235    
    3,588,159     GMO Flexible Equities Fund, Class VI     73,306,096    
    1,861,635     GMO Inflation Indexed Plus Bond Fund, Class VI     31,349,935    
    13,490,385     GMO International Core Equity Fund, Class VI     359,383,858    
    7,896,564     GMO International Growth Equity Fund, Class IV     151,219,203    
    7,508,523     GMO International Intrinsic Value Fund, Class IV     154,450,318    
    8,656,353     GMO International Small Companies Fund, Class III     59,555,711    
    53,526,147     GMO Quality Fund, Class VI     941,524,920    
    359,741     GMO Short-Duration Investment Fund, Class III     2,795,190    
    3,441,999     GMO Special Situations Fund, Class VI     92,865,123    
    15,583,407     GMO Strategic Fixed Income Fund, Class VI     250,425,347    
    4,374,857     GMO U.S. Core Equity Fund, Class VI     42,786,097    
    1,032,718     GMO World Opportunity Overlay Fund     19,993,417    
    TOTAL MUTUAL FUNDS (COST $3,346,133,961)     3,053,323,943    
        SHORT-TERM INVESTMENTS — 0.0%  
        Money Market Funds — 0.0%  
    52,956     State Street Institutional U.S. Government Money Market Fund-
Institutional Class		     52,956    
    TOTAL SHORT-TERM INVESTMENTS (COST $52,956)     52,956    
            TOTAL INVESTMENTS — 100.0%
(Cost $3,448,956,866)		     3,159,077,153    
            Other Assets and Liabilities (net) — 0.00%     45,059    
    TOTAL NET ASSETS — 100.0%   $ 3,159,122,212    

 

See accompanying notes to the financial statements.


21


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Notes to Schedule of Investments:

144A - Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional investors.

AMBAC - Insured as to the payment of principal and interest by AMBAC Assurance Corporation.

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

CDO - Collateralized Debt Obligation

CMBS - Commercial Mortgage Backed Security

EUR LIBOR - London Interbank Offered Rate denominated in Euros.

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.

MTN - Medium Term Note

RMBS - Residential Mortgage Backed Security

XL - Insured as to the payment of principal and interest by XL Capital Assurance.

The rates shown on variable rate notes are the current interest rates at August 31, 2009, 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).

Currency Abbreviations:

EUR - Euro

See accompanying notes to the financial statements.


22



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $102,822,905) (Note 2)   $ 105,753,210    
Investments in affiliated issuers, at value (cost $3,346,133,961) (Notes 2 and 8)     3,053,323,943    
Receivable for investments sold     244,063    
Interest receivable     103,794    
Receivable for expenses reimbursed by Manager (Note 3)     16,678    
Miscellaneous receivable     644    
Total assets     3,159,442,332    
Liabilities:  
Payable for investments purchased     46    
Payable for Fund shares repurchased     238,467    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     5,565    
Accrued expenses     76,042    
Total liabilities     320,120    
Net assets   $ 3,159,122,212    
Net assets consist of:  
Paid-in capital   $ 3,833,563,618    
Accumulated undistributed net investment income     10,490,136    
Accumulated net realized loss     (395,051,829 )  
Net unrealized depreciation     (289,879,713 )  
    $ 3,159,122,212    
Net assets attributable to:  
Class III shares   $ 3,159,122,212    
Shares outstanding:  
Class III     346,305,858    
Net asset value per share:  
Class III   $ 9.12    

 

See accompanying notes to the financial statements.


23


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 44,703,639    
Interest     4,116,090    
Dividends     3,737    
Total investment income     48,823,466    
Expenses:  
Legal fees     51,980    
Trustees fees and related expenses (Note 3)     27,230    
Custodian, fund accounting agent and transfer agent fees     26,036    
Audit and tax fees     16,376    
Chief Compliance Officer (Note 3)     12,604    
Registration fees     4,048    
Miscellaneous     5,980    
Total expenses     144,254    
Fees and expenses reimbursed by Manager (Note 3)     (104,420 )  
Expense reductions (Note 2)     (294 )  
Net expenses     39,540    
Net investment income (loss)     48,783,926    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     707,084    
Investments in affiliated issuers     (245,253,414 )  
Realized gains distributions from affiliated issuers (Note 8)     11,765,598    
Foreign currency and foreign currency related transactions     (68 )  
Net realized gain (loss)     (232,780,800 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     12,575,336    
Investments in affiliated issuers     809,399,418    
Net unrealized gain (loss)     821,974,754    
Net realized and unrealized gain (loss)     589,193,954    
Net increase (decrease) in net assets resulting from operations   $ 637,977,880    

 

See accompanying notes to the financial statements.


24


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 48,783,926     $ 267,390,545    
Net realized gain (loss)     (232,780,800 )     (106,114,266 )  
Change in net unrealized appreciation (depreciation)     821,974,754       (959,967,450 )  
Net increase (decrease) in net assets from operations     637,977,880       (798,691,171 )  
Distributions to shareholders from:  
Net investment income  
Class III     (26,665,875 )     (309,984,149 )  
Net realized gains  
Class III     —       (146,420,155 )  
      (26,665,875 )     (456,404,304 )  
Net share transactions (Note 7):  
Class III     113,730,322       322,020,967    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     1,092,843       1,206,564    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     114,823,165       323,227,531    
Total increase (decrease) in net assets     726,135,170       (931,867,944 )  
Net assets:  
Beginning of period     2,432,987,042       3,364,854,986    
End of period (including accumulated undistributed net investment
income of $10,490,136 and distributions in excess of net
investment income of $11,627,915, respectively)		   $ 3,159,122,212     $ 2,432,987,042    

 

See accompanying notes to the financial statements.


25



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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 7.28     $ 11.37     $ 12.01     $ 11.76     $ 11.33     $ 10.74    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.15       0.87       0.48       0.39       0.36       0.27    
Net realized and unrealized
gain (loss)		     1.77       (3.43 )     0.05       0.66       0.86       0.90    
Total from investment
operations		     1.92       (2.56 )     0.53       1.05       1.22       1.17    
Less distributions to shareholders:  
From net investment income     (0.08 )     (1.04 )     (0.53 )     (0.43 )     (0.37 )     (0.32 )  
From net realized gains     —       (0.49 )     (0.64 )     (0.37 )     (0.42 )     (0.26 )  
Total distributions     (0.08 )     (1.53 )     (1.17 )     (0.80 )     (0.79 )     (0.58 )  
Net asset value, end of
period		   $ 9.12     $ 7.28     $ 11.37     $ 12.01     $ 11.76     $ 11.33    
Total Return(b)      26.46 %**      (24.30 )%     4.10 %     9.22 %     11.05 %     11.07 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 3,159,122     $ 2,432,987     $ 3,364,855     $ 3,079,164     $ 1,812,191     $ 1,030,238    
Net expenses to average
daily net assets(c)(d) 		     0.00 %(e)*      0.00 %(e)      0.00 %(e)      0.00 %     0.00 %     0.00 %  
Net investment income to
average daily net assets(a) 		     3.51 %*      8.81 %     3.89 %     3.28 %     3.17 %     2.53 %  
Portfolio turnover rate     14 %**      44 %     76 %     23 %     16 %     10 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.01 %*      0.01 %     0.01 %     0.01 %     0.01 %     0.02 %  
Purchase premiums and
redemption fees consisted
of the following per share
amounts:† 		   $ 0.00 (f)    $ 0.00 (f)    $ 0.00 (f)    $ 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 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)  Net expenses to average daily net assets were less than 0.01%.

(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.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


26



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Global Balanced Asset Allocation Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 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 Barclays Capital U.S. Aggregate Index in the following proportions: 65% (MSCI ACWI (All Country World Index) Index) and 35% (Barclays Capital U.S. Aggregate Index). The Fund is a fund of funds and invests primarily in shares or holds assets of other series of the Trust, which may include the GMO International Equity Funds, GMO U.S. Equity Funds, GMO Fixed Income Funds, GMO Alpha Only Fund, GMO Alternative Asset Opportunity Fund, GMO Flexible Equities Fund, GMO Short-Duration Collateral Fund, GMO Special Situations Fund, and GMO World Opportunity Overlay Fund (the GMO Funds in which the Fund invests are collectively referred to as "underlying funds"). The Fund intends to have at least 25% of it s assets invested in fixed income investments and at least 25% of its assets invested in equity investments. In addition, the Fund may hold securities (particularly asset-backed securities) directly or through one or more subsidiaries or other entities. The Fund may be exposed to foreign and U.S. equity securities (including emerging country equities, both growth and value style equities, and equities of any market capitalization), U.S. and foreign fixed income securities (including fixed income securities of any credit quality and having any maturity or duration), the investment returns of commodities and, from time to time, other alternative asset classes. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury 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). As of August 31, 2009, shares of GMO Alternative Asset Opportunity Fund, GMO Flexible Equities Fund, GMO Short-Duration Collateral Fund, GMO Special Situations Fund, and GMO World Opportunity Overlay Fund were 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


27


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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.

As of August 31, 2009, a portion of the Fund's return of capital received from certain other GMO funds is expected to be classified as dividend income for U.S. federal income tax purposes. Accordingly, "dividends from affiliated issuers" as reported in the Statement of Operations has been increased by the portion estimated to be dividend income as of August 31, 2009. The estimated increase in dividend income is $2,680,596. In addition, all applicable related income disclosures throughout this Semiannual Report have been adjusted by the additional income. The dividends from affiliated issuers are subject to change and will not be finalized until February 28, 2010, the Fund's fiscal year-end. Finally, in early 2010, applicable shareholders will receive Form 1099-DIV that will indicate the appropriate tax character of all distributions paid by the Fund in 2009.

Portfolio valuation

Shares of the underlying funds and other mutual funds are generally valued at their net asset value.

Investments held directly by the Fund and by the underlying funds are valued as follows. Securities listed on a securities exchange for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally 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 fa ir value as determined in good faith by the Trustees or persons acting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 36.40% of th e 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. Those underlying funds classify such securities under SFAS 157 (as defined below) as level 2.


28


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Typically the Fund and the underlying funds value debt instruments based on the most recent bid supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. The Manager monitors erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has discretion to override a price supplied by a source (e.g., by taking a price supplied by another) when it believes that the price supplied is not reliable. In addition, although alternative prices are available for other securities held by the Fund, those alternative sources would not necessarily confirm the security price used by the Fund. Therefore, the existence of those alternative sources does not necessarily provide greater certainty about the prices used by the Fu nd. As of August 31, 2009, the total value of securities held directly and indirectly that were fair valued or for which no alternative pricing source was available represented 3.77% of the net assets of the Fund.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

Level 3 – Valuations based on inputs that are unobservable and significant. The Fund utilized the following fair value techniques on Level 3 investments: The Fund valued certain debt securities using indicative bids received from primary pricing sources. The Fund valued certain debt securities and preferred stocks using a specified spread above the LIBOR Rate or U.S. Treasury yield.


29


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Debt Obligations  
Asset-Backed Securities   $ —     $ 15,007,692     $ 87,698,835     $ 102,706,527    
Corporate Debt     —       564,093       —       564,093    
U.S. Government Agency     —       —       2,339,634       2,339,634    
TOTAL DEBT OBLIGATIONS     —       15,571,785       90,038,469       105,610,254    
Preferred Stocks     —       —       90,000       90,000    
Mutual Funds     2,867,159,307       186,164,636       —       3,053,323,943    
Short-Term Investments     —       52,956       —       52,956    
Total Investments     2,867,159,307       201,789,377       90,128,469       3,159,077,153    
Total   $ 2,867,159,307     $ 201,789,377     $ 90,128,469     $ 3,159,077,153    

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuation notes in their financial statements. The aggregate net values of the Fund's investments (both direct and indirect) in securities and other financial instruments using Level 3 inputs were 14.19% and (0.02)% of total net assets, respectively.

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

    Balances
as of
February 28,
2009		   Net
Purchases/
(Sales)		   Accrued
Discounts/
Premiums		   Total
Realized
Gain/(Loss)		   Change in
Unrealized
Appreciation
(Depreciation)		   Net
transfers
in to/out
of Level 3		   Balances
as of
August 31,
2009		  
Debt Obligations  
Asset-Backed
Securities		   $ 103,691,094     $ (17,486,223 )   $ 1,607,670     $ 2,308,653     $ 12,585,333     $ (15,007,692 )   $ 87,698,835    
U.S. Government
Agency		     2,580,169       (230,466 )     8,963       8,852       (27,884 )     —       2,339,634    
Total Debt
Obligations		     106,271,263       (17,716,689 )     1,616,633       2,317,505       12,557,449       (15,007,692 )     90,038,469    
Preferred Stocks     90,000       —       —       —       —       —       90,000    
Total   $ 106,361,263     $ (17,716,689 )   $ 1,616,633     $ 2,317,505     $ 12,557,449     $ (15,007,692 )   $ 90,128,469    

 


30


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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.

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 carryforwards 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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $103,692,912.


31


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

As of February 28, 2009, 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   $ (638 )  
Total   $ (638 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 3,621,839,525     $ 99,862,076     $ (562,624,448 )   $ (462,762,372 )  

 

For the period ended August 31, 2009, the Fund had net realized losses attributed to redemption in-kind transactions of $510,107.

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. 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 uses the identified cost basis for the purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different expense and fee levels and the Fund may


32


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

From prior to March 1, 2009 through June 29, 2009, the premium on cash purchases was 0.09% of the amount invested and the fee on cash redemptions was 2.00% of the amount redeemed. From June 30, 2009 through August 31, 2009, the purchase premium remained at 0.09% of the amount invested and the redemption fee was changed to 1.00% of the amount redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premi um or redemption fee with respect to that portion. The Manager may consider known cash flows out of or into other series of the Trust when placing orders for the cash purchase or redemption of shares by the Fund shareholders or other prospective or existing shareholders of the Funds for whom GMO provides asset allocation advice. Consequently, the Fund and those other shareholders for whom GMO provides asset allocation advice will tend to benefit from waivers of the Funds' purchase premiums and redemption fees to a greater extent than other prospective and existing shareholders of the other series of the Trust. All or a portion of the Fund's purchase premiums and/or redemption fees may be waived at the Manager's discretion when they are de minimis and/or the Manager deems it equitable to do so, including without limitation when the weighted average of (i) the estimated transaction costs for directly held assets and (ii) the purchase premiums and/or redemption fees, if any, imposed by the underlying funds are less than the pruchase premiums and/or redemption fees imposed by the Fund. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of a Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, inclu ding, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.


33


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund, including those risks to which the Fund is exposed as a result of its investments in underlying Funds. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities held by underlying funds may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Declines in stock market prices generally are likely to result in declines in the value of the underlying funds' investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. An underlying fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Market Risk — Fixed Income Securities — Typically, the value of an underlying fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads on asset-backed and other fixed income securities. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent an underlying fund from selling securities or closing derivative positions at desirable prices.

• Derivatives Risk — The use of derivatives by underlying funds involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in the underlying funds, including the risk that the underlying funds in which it invests will not perform as expected. Because the Fund bears the fees and expenses of the underlying Funds in which it invests, investments in underlying funds with higher fees or expenses than the underlying Funds in which the Fund is invested will increase the Fund's total expenses. The fees and expenses associated with an investment in


34


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

the Fund are less predictable and may potentially be higher than fees and expenses associated with an investment in funds that charge a fixed management fee.

Other principal risks of an investment in the Fund include Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments by an underlying fund in companies with smaller market capitalizations), Commodities Risk (value of an underlying fund's shares may be affected by factors particular to the commodities markets and may fluctuate more than the share value of a fund with a broader range of investments), Currency Risk (risk that fluctuations in exchange rates may adversely affect the value of an underlying fund's investments denominated in foreign currencies or that the U.S. dollar will decline in value relative to a foreign currency being hedged by an underlying fund), Leveraging Risk (increased risks from use of reverse repurchase agreements and other derivatives and securities lending by an underlying fund), Credit and Counterparty Risk (risk of default of an issuer of a portfolio security or a derivatives counterparty of an underlying fund or a borrower of an underlying fund's securities), Real Estate Risk (r isk to an underlying fund that concentrates its assets in real estate-related investments that factors affecting the real estate industry may cause the value of the underlying fund's investments to fluctuate more than if it invested in securities of companies in a broader range of industries), Short Sales Risk (risk that an underlying fund's loss on the short sale of securities that it does not own is unlimited), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (ri sk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). Some of the underlying funds are non-diversified investment companies under the 1940 Act, and therefore a decline in the market value of a particular security held by those funds may affect their performance more than if they were diversified.

The Fund invests (including through investment in underlying funds) in asset-backed securities, which may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, or credit-card receivables, which expose the Fund to additional types of market risk. Asset-backed securities also may be collateralized by the fees earned by service providers. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as "collateralized debt obligations"). Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flows generated by the underlying assets backing the securities. The amount of market risk associated with asset-backed securities depends on many factors, including the deal structure (e.g., the amount of u nderlying assets or other support available to produce the cash flows necessary to service interest and make principal payments), the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of principal if too many obligors of the underlying obligations default in payment of the obligations. The obligations of issuers (and obligors of underlying assets) also are subject


35


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

to bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. Many asset-backed securities in which the Fund has invested are now rated below investment grade.

With the deterioration of worldwide economic and liquidity conditions that became acute in 2008, the markets for asset-backed securities became fractured and uncertainty about the creditworthiness of those securities (and underlying collateral) caused credit spreads (the difference between yields on the asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities generally. These events reduced liquidity for securitized credits and contributed to substantial declines in the value of asset-backed and other fixed income securities. There can be no assurance these conditions will not continue or that they will not deteriorate further. Also, government actions and proposals affecting the terms of underl ying home and consumer loans, changes in demand for products (e.g., automobiles) financed by those loans, and the inability of borrowers to refinance existing loans (e.g., sub-prime mortgages) have had, and may continue to have, adverse credit, valuation and liquidity effects on asset-backed securities. There can be no assurance that in the future the market for asset-backed securities will become more liquid.

The value of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in a decline in the value of the underlying assets, as well as costs and delays. In addition, asset-backed securities representing diverse sectors (e.g., auto loans, student loans, sub-prime mortgages, and credit-card receivables) have become more highly correlated since the deterioration of worldwide economic and liquidity conditions referred to above.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.

3.  Fees and other transactions with affiliates

The Manager decides how to allocate the assets of the Fund among underlying funds. The Manager does not charge the Fund a management fee or shareholder service fee, but it receives management and shareholder service fees from the underlying funds in which the Fund invests. Because those fees vary


36


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

from fund to fund, the levels of indirect net expenses set forth below are affected by the Manager's asset allocation decisions.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.00% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) or would be an investment co mpany 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, nonrecurring 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, 2009, 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		  
  0.384 %     0.060 %     0.003 %     0.447 %  

 

        

The Fund's portion of the fees paid by the Trust to Trust's independent Trustees and CCO during the period ended August 31, 2009 was $21,710 and $12,604, respectively. The compensation and expenses of the CCO are included in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $661,311,385 and $393,264,840, respectively. Cost of purchases and proceeds from sales of securities for in-kind transactions for the period ended August 31, 2009 were $7,500,795 and $1,953,650, respectively.


37


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 14.33% 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.

As of August 31, 2009, 0.13% 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 each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
    Shares   Amount   Shares   Amount  
Class III:  
Shares sold     24,596,113     $ 209,874,799       15,432,640     $ 163,016,462    
Shares issued to shareholders
in reinvestment of distributions		     2,785,813       23,319,640       48,859,380       425,639,992    
Shares repurchased     (15,121,829 )     (119,464,117 )     (26,134,315 )     (266,635,487 )  
Purchase premiums     —       168,538       —       136,196    
Redemption fees     —       924,305       —       1,070,368    
Net increase (decrease)     12,260,097     $ 114,823,165       38,157,705     $ 323,227,531    

 


38


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 409,903,662     $ 124,300,113     $ 189,316,450     $ 19,717,357     $ —     $ 304,532,467    
GMO Asset Allocation
Bond Fund, Class VI		     —       169,782,259       17,412,519       —       —       155,736,880    
GMO Domestic Bond
Fund, Class VI		     204,811,016       613,454       762,954       2,524,369       11,765,598       166,858,142 5   
GMO Emerging Country
Debt Fund, Class IV		     8,197,052       207,831       —       168,957       —       11,019,004    
GMO Emerging Markets
Fund, Class VI		     149,513,226       22,838,911       50,585,531       634,624       —       235,522,235    
GMO Flexible Equities
Fund, Class VI		     51,855,694       4,138,885       400,407       —       —       73,306,096    
GMO Inflation Indexed
Plus Bond Fund,
Class VI		     27,675,383       118,284       103,145       1,713,196 *      —       31,349,935    
GMO International Core
Equity Fund, Class VI		     242,284,954       19,767,492       14,843,073       2,718,328       —       359,383,858    
GMO International Growth
Equity Fund, Class IV		     85,167,566       55,638,350       31,063,213       3,816,724       —       151,219,203    
GMO International Intrinsic
Value Fund, Class IV		     77,290,040       52,292,839       31,414,314       1,976,208       —       154,450,318    
GMO International Small
Companies Fund,
Class III		     —       54,417,591       —       195,991       —       59,555,711    
GMO Quality Fund,
Class VI		     637,315,620       156,442,702       33,343,247       9,751,281       —       941,524,920    
GMO Short-Duration
Investment Fund,
Class III		     2,571,600       10,680       9,590       19,584       —       2,795,190    
GMO Special Situations
Fund, Class VI		     86,658,653       6,018,950       4,681,461       —       —       92,865,123    
GMO Strategic Fixed
Income Fund, Class VI		     270,301,534       964,845       1,007,117       1,017,044       —       250,425,347 t   
GMO U.S. Core Equity
Fund, Class VI		     34,489,170       1,258,994       2,428,470       449,976       —       42,786,097    

 


39


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Affiliate   Value,
beginning of
period		   Purchases   Sales
Proceeds		   Dividend
Income		   Distributions
of Realized
Gains		   Value, end
of period		  
GMO World Opportunity
Overlay Fund		   $ 19,021,564     $ —     $ 70,842     $ —     $ —     $ 19,993,417 o   
Totals   $ 2,307,056,734     $ 668,812,180     $ 377,442,333     $ 44,703,639     $ 11,765,598     $ 3,053,323,943    

 

5  The Fund received return of capital distributions in the amount of $48,293,704. Please note that in early 2010, Form 1099-DIV is anticipated to be sent to applicable shareholders that will state the actual tax characterization of all distributions paid in 2009.

*  A significant portion of the dividend is expected to be a return of capital for tax purposes. Please note that in early 2010, Form 1099-DIV is anticipated to be sent to applicable shareholders that will state the actual tax characterization of all distributions paid in 2009.

t  The Fund received return of capital distributions in the amount of $59,223,224. Please note that in early 2010, Form 1099-DIV is anticipated to be sent to applicable shareholders that will state the actual tax characterization of all distributions paid in 2009.

o  The Fund received return of capital distributions in the amount of $1,731,725.

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. Effective September 14, 2009, the premium on cash purchases was 0.07% of the amount invested and the fee on cash redemptions was 0.08% of the amount redeemed.


40



GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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 the Fund's performance relative to its benchmark than to the peer group 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.


41


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

The Trustees also gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement, but that the Fund indirectly bears advisory fees paid to the Manager by other funds of the Trust in which it invests. The Trustees also considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 (including the effect of recent market events and changes in assets under management and revenues on such profitability); 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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,


42


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


43


GMO Global Balanced Asset Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.45 %   $ 1,000.00     $ 1,264.60     $ 2.57    
2) Hypothetical     0.45 %   $ 1,000.00     $ 1,022.94     $ 2.29    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


44



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Common Stocks     95.4 %  
Short-Term Investments     1.9    
Preferred Stocks     1.7    
Futures     0.3    
Debt Obligations     0.1    
Private Equity Securities     0.1    
Investment Funds     0.1    
Forward Currency Contracts     0.1    
Convertible Securities     0.0    
Rights and Warrants     0.0    
Other     0.3    
      100.0 %  

 

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


1


GMO International Equity Allocation Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Country / Region Summary**   % of Investments  
Japan     21.7 %  
Euro Region***     21.7    
United Kingdom     18.0    
Switzerland     6.9    
South Korea     4.0    
Sweden     3.6    
Australia     3.4    
Russia     2.6    
Brazil     2.4    
China     2.1    
Taiwan     2.0    
Turkey     1.9    
Canada     1.4    
India     1.2    
Singapore     1.1    
Thailand     1.1    
Denmark     0.9    
Hong Kong     0.7    
Poland     0.6    
Indonesia     0.5    
South Africa     0.4    
Egypt     0.3    
Malaysia     0.3    
Israel     0.2    
Mexico     0.2    
New Zealand     0.2    
Norway     0.2    
Chile     0.1    
Czech Republic     0.1    
Hungary     0.1    
Philippines     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, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.


2



GMO International Equity Allocation Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value ($)		   Description   Value ($)  
        MUTUAL FUNDS — 100.0%  
        Affiliated Issuers — 100.0%  
    16,148,709     GMO Emerging Markets Fund, Class VI     171,983,755    
    916,286     GMO Flexible Equities Fund, Class VI     18,719,721    
    16,352,746     GMO International Growth Equity Fund, Class IV     313,155,085    
    15,470,434     GMO International Intrinsic Value Fund, Class IV     318,226,820    
    2,271,693     GMO International Small Companies Fund, Class III     15,629,245    
    TOTAL MUTUAL FUNDS (COST $983,988,109)     837,714,626    
        SHORT-TERM INVESTMENTS — 0.0%  
    26,854     State Street Eurodollar Time Deposit, 0.01%, due 09/01/09     26,854    
    TOTAL SHORT-TERM INVESTMENTS (COST $26,854)     26,854    
            TOTAL INVESTMENTS — 100.0%
(Cost $984,014,963)		     837,741,480    
            Other Assets and Liabilities (net) — (0.0%)     (36,538 )  
    TOTAL NET ASSETS — 100.0%   $ 837,704,942    

 

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, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $26,854) (Note 2)   $ 26,854    
Investments in affiliated issuers, at value (cost $983,988,109) (Notes 2 and 8)     837,714,626    
Receivable for investments sold     24,508    
Receivable for expenses reimbursed by Manager (Note 3)     10,478    
Miscellaneous receivable     43    
Total assets     837,776,509    
Liabilities:  
Payable for Fund shares repurchased     23,964    
Payable to affiliate for (Note 3):  
Trustees and Chief Compliance Officer of GMO Trust fees     1,240    
Accrued expenses     46,363    
Total liabilities     71,567    
Net assets   $ 837,704,942    
Net assets consist of:  
Paid-in capital   $ 1,042,740,124    
Accumulated undistributed net investment income     11,569,248    
Accumulated net realized loss     (70,330,947 )  
Net unrealized depreciation     (146,273,483 )  
    $ 837,704,942    
Net assets attributable to:  
Class III shares   $ 837,704,942    
Shares outstanding:  
Class III     93,611,617    
Net asset value per share:  
Class III   $ 8.95    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends from affiliated issuers (Note 8)   $ 11,577,600    
Total investment income     11,577,600    
Expenses:  
Custodian, fund accounting agent and transfer agent fees     24,012    
Audit and tax fees     16,376    
Legal fees     12,604    
Trustees fees and related expenses (Note 3)     6,551    
Registration fees     3,772    
Miscellaneous     5,058    
Total expenses     68,373    
Fees and expenses reimbursed by Manager (Note 3)     (58,880 )  
Expense reductions (Note 2)     (1,141 )  
Net expenses     8,352    
Net investment income (loss)     11,569,248    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in affiliated issuers     (13,805,708 )  
Net realized gain (loss)     (13,805,708 )  
Change in net unrealized appreciation (depreciation) on:  
Investments in affiliated issuers     261,752,299    
Net realized and unrealized gain (loss)     247,946,591    
Net increase (decrease) in net assets resulting from operations   $ 259,515,839    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 11,569,248     $ 23,486,299    
Net realized gain (loss)     (13,805,708 )     20,403,838    
Change in net unrealized appreciation (depreciation)     261,752,299       (463,476,207 )  
Net increase (decrease) in net assets from operations     259,515,839       (419,586,070 )  
Distributions to shareholders from:  
Net investment income  
Class III     —       (24,219,892 )  
Net realized gains  
Class III     (9,699,836 )     (163,749,117 )  
      (9,699,836 )     (187,969,009 )  
Net share transactions (Note 7):  
Class III     68,047,070       370,949,981    
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     178,982       725,960    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     68,226,052       371,675,941    
Total increase (decrease) in net assets     318,042,055       (235,879,138 )  
Net assets:  
Beginning of period     519,662,887       755,542,025    
End of period (including accumulated undistributed net investment
income of $11,569,248 and $0, respectively)		   $ 837,704,942     $ 519,662,887    

 

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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning of
period		   $ 6.17     $ 16.45     $ 17.96     $ 17.13     $ 15.19     $ 12.83    
Income (loss) from investment
operations:		  
Net investment income (loss)(a)†      0.13       0.40       0.31       0.33       0.18       0.29    
Net realized and unrealized
gain (loss)		     2.75       (7.20 )     1.32       2.85       2.90       2.65    
Total from investment
operations		     2.88       (6.80 )     1.63       3.18       3.08       2.94    
Less distributions to shareholders:  
From net investment income     —       (0.39 )     (1.00 )     (0.83 )     (0.47 )     (0.42 )  
From net realized gains     (0.10 )     (3.09 )     (2.14 )     (1.52 )     (0.67 )     (0.16 )  
Total distributions     (0.10 )     (3.48 )     (3.14 )     (2.35 )     (1.14 )     (0.58 )  
Net asset value, end of period   $ 8.95     $ 6.17     $ 16.45     $ 17.96     $ 17.13     $ 15.19    
Total Return(b)      47.01 %**      (48.63 )%     7.81 %     19.33 %     21.15 %     23.25 %  
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 837,705     $ 519,663     $ 755,542     $ 758,757     $ 659,520     $ 489,026    
Net expenses to average daily
net assets(c)(d) 		     0.00 %(e)*      0.00 %(e)      0.00 %(e)      0.00 %     0.00 %     0.00 %  
Net investment income to
average daily net assets(a) 		     3.30 %*      3.46 %     1.66 %     1.87 %     1.15 %     2.18 %  
Portfolio turnover rate     5 %**      33 %     9 %     4 %     7 %     15 %  
Fees and expenses reimbursed
by the Manager to average
daily net assets:		     0.02 %*      0.02 %     0.01 %     0.01 %     0.02 %     0.03 %  
Purchase premiums and
redemption fees consisted of
the following per share
amounts:† 		   $ 0.00 (f)    $ 0.01     $ 0.00 (f)    $ 0.00 (f)    $ 0.00 (f)    $ 0.01    

 

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

(b)  The total returns would have been lower had certain expenses not been reimbursed 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)  Net expenses to average daily net assets were less than 0.01%.

(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.

*  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, 2009 (Unaudited)

1.  Organization

GMO International Equity Allocation Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 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. The Fund also may invest in shares of other series of the Trust, including the GMO Fixed Income Funds, GMO Alpha Only Fund, GMO Flexible Equities Fund, and GMO Alternative Asset Opportunity Fund (the GMO Funds in which the Fund invests are collectively referred to as "underlying funds"). Although the Fund's primary exposure is to foreign equity securities (including emerging country equities, both growth and value style equities, and equities of any market capitalization), the Fund also may have exposure to foreign and U.S. fixed income securities (including fixed income securities of any credit quality and having any maturity or duration), as well as to the investment returns of commodities and, from time to time, other alternative asset classes. Under normal circumstances, the Fund invests at least 80% of its assets in equity investments (which include common stocks and other stock-related securities, such as preferred stocks, convertible securities, and depository receipts). The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and other cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury 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. As of August 31, 2009, shares of GMO Flexible Equities Fund were 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.


8


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Portfolio valuation

Shares of the underlying funds and other mutual funds are generally 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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 89.34% 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. Those underlying funds classify such securities under SFAS 157 (as defined below) as Level 2.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs.

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


9


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		  
Significant
Unobservable
Inputs
(Level 3)		  



Total		  
Mutual Funds   $ 818,994,905     $ 18,719,721     $ —     $ 837,714,626    
Short-Term Investments     26,854       —       —       26,854    
Total   $ 819,021,759     $ 18,719,721     $ —     $ 837,741,480    

 

Underlying funds are classified above as either Level 1 or Level 2. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying funds, please refer to the portfolio valuations notes in their financial statements. The aggregate net value of the Fund's indirect investments in securities using Level 3 inputs was 1.30% of total net assets.

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, 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 carryforwards 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.


10


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 1,051,506,025     $ 2,462,524     $ (216,227,069 )   $ (213,764,545 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. 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 uses the identified cost basis for the purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different 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


11


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

daily cash balances the Fund maintains with State Street. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

For the six-month period ended August 31, 2009, the premium on cash purchases and the fee on cash redemptions were each 0.18% of the amount invested or redeemed. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager may consider known cash flows out of or into other series of the Trust when placing orders for the cash purchase or redemption of shares by the Fund shareholders or other prospective or existing shareholders of the Funds for whom GMO provides asset allocation advice. Consequently, the Fund and those other shareholders for whom GMO provides asset allocation advice will tend to benefit from waivers of the Funds' purchase premiums and redemption fees to a greater extent than other prospective and existing shareholders of the other series of the Trust. All or a portion of the Fund's purchase premiums and/or redemption fees may be waived at the Manager's discretion when they are de minimis and/or the Manager deems it equitable to do so, including without limitation when the weighted average of (i) the estimated transaction costs for directly held assets and (ii) the purchase premiums and/or redemption fees, if any, imposed by the underlying funds are less than the purchase premiums and/or redemption fees imposed by the Fund. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemptio n of a Fund's shares if the Fund will not incur transaction costs or will incur/reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of a Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees) incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund, including those risks to which the Fund is exposed as a result


12


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

of its investments in the underlying funds. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities held by underlying funds may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund and its underlying funds generally seek to be fully invested and normally do not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's and the underlying funds' investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. An underlying fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments. These and other risks (e.g., nationalization, expropriation, or other confiscation) are greater for the Fund's investments in emerging countries, the economies of which tend to be more volatile than the economies of developed countries.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of an underlying fund's foreign currency holdings and investments denominated in foreign currencies.

• Liquidity Risk — Low trading volume, lack of a market maker, or legal restrictions may limit or prevent an underlying fund from selling securities or closing derivative positions at desirable prices.

• Derivatives Risk — The use of derivatives by underlying funds involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset.

• Fund of Funds Risk — The Fund is indirectly exposed to all of the risks of an investment in the underlying funds, including the risk that the underlying funds in which it invests will not perform as expected. Because the Fund bears the fees and expenses of the underlying funds in which it invests, investments in underlying funds with higher fees or expenses than the underlying funds in which the Fund is invested will increase the Fund's total expenses. The fees and expenses associated with an investment in the Fund are less predictable and may potentially be higher than fees and expenses associated with an investment in funds that charge a fixed management fee.

Other principal risks of an investment in the Fund include Market Risk — Fixed Income Securities (risk that the value of an underlying fund's fixed income securities will decline during periods of rising interest


13


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

rates and widening of credit spreads), Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments by an underlying fund in companies with smaller market capitalizations), Commodities Risk (value of an underlying fund's shares may be affected by factors particular to the commodities markets and may fluctuate more than the share value of a fund with a broader range of investments), Leveraging Risk (increased risks from use of reverse repurchase agreem ents and other derivatives and securities lending by an underlying fund), Credit and Counterparty Risk (risk of default of an issuer of a portfolio security or a derivatives counterparty of an underlying fund or a borrower of an underlying fund's securities), Short Sales Risk (risk that an underlying fund's loss on the short sale of securities that it does not own is unlimited), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Mar ket Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), and Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis). Some of the underlying funds are non-diversified investment companies under the 1940 Act, and therefore a decline in the market value of a particular security held by those funds may affect their performance more than if they were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund adopted SFAS 161 on March 1, 2009. As of August 31, 2009, the Fund held no derivative contracts for the purposes of SFAS 161.

3.  Fees and other transactions with affiliates

The Manager decides how to allocate the assets of the Fund among underlying funds. The Manager does not charge the Fund a management fee or shareholder service fee, but it receives management and shareholder service fees from the underlying funds in which the Fund invests. Because those fees vary from fund to fund, the levels of indirect net expenses set forth below are affected by the Manager's asset allocation decisions.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.00% of the Fund's average daily net assets. Excluded Fund Fees and 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


14


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fund) 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, nonrecurring 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, 2009, 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  
  0.585 %     0.083 %     0.668 %  

 

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, 2009 was $5,171 and $2,944, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $105,695,863 and $35,609,053, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 11.62% 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.

As of August 31, 2009, 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.


15


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     11,362,161     $ 84,022,719       31,165,724     $ 323,942,000    
Shares issued to shareholders
in reinvestment of distributions		     1,153,252       8,937,700       18,335,555       179,922,703    
Shares repurchased     (3,102,351 )     (24,913,349 )     (11,239,414 )     (132,914,722 )  
Purchase premiums     —       143,769       —       547,551    
Redemption fees     —       35,213       —       178,409    
Net increase (decrease)     9,413,062     $ 68,226,052       38,261,865     $ 371,675,941    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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		   $ 89,475,333     $ 20,088,399     $ 4,211,537     $ 396,342     $ —     $ 171,983,755    
GMO Flexible
Equities Fund, Class VI		     11,496,954       2,909,984       194,910       —       —       18,719,721    
GMO International
Growth Equity Fund,
Class IV		     214,063,176       38,511,017       13,189,998       7,337,990       —       313,155,085    
GMO International
Intrinsic Value Fund,
Class IV		     204,645,762       29,909,698       18,012,608       3,791,430       —       318,226,820    
GMO International Small
Companies III		     —       14,276,765       —       51,838       —       15,629,245    
Totals   $ 519,681,225     $ 105,695,863     $ 35,609,053     $ 11,577,600     $ —     $ 837,714,626    

 


16


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


17



GMO International Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, as well as factors identified by the Manager as contributing to the Fund's performance. The Trustees also considered the qualifications and experience of the personnel responsible for managing the Fund, the support those personnel received from the Manager, the investment techniques used to manage the Fund, and the overall competence of the Manager.

The Trustees also gave substantial consideration to the fact that the Fund does not pay an advisory fee to the Manager under the Fund's investment management agreement, but that the Fund indirectly bears advisory fees paid to the Manager by other funds of the Trust in which it invests. The Trustees also considered so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's


18


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 profi tability with respect to the other funds of the Trust and the Trust as a whole (including the effect of recent market events and changes in assets under management and revenues on such profitability); 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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 International Equity Allocation Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


20


GMO International Equity Allocation Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.67 %   $ 1,000.00     $ 1,470.10     $ 4.17    
2) Hypothetical     0.67 %   $ 1,000.00     $ 1,021.83     $ 3.41    

 

*  Expenses are calculated using the Class's annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


21



GMO Developed World Stock Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     95.8 %  
Short-Term Investments     3.4    
Futures Contracts     0.2    
Forward Currency Contracts     0.1    
Other     0.5    
      100.0 %  
Country Summary   % of Equity Investments  
United States     48.0 %  
Japan     14.4    
United Kingdom     13.1    
France     7.9    
Italy     3.9    
Germany     2.3    
Singapore     2.0    
Switzerland     1.8    
Netherlands     1.5    
Sweden     1.4    
Spain     1.1    
Canada     0.8    
Belgium     0.6    
Australia     0.4    
Greece     0.3    
Hong Kong     0.3    
Ireland     0.2    
      100.0 %  

 


1


GMO Developed World Stock Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Industry Group Summary   % of Equity Investments  
Pharmaceuticals, Biotechnology & Life Sciences     14.7 %  
Banks     9.4    
Energy     8.8    
Capital Goods     6.8    
Food, Beverage & Tobacco     5.6    
Materials     5.3    
Software & Services     5.0    
Insurance     4.7    
Technology Hardware & Equipment     4.5    
Diversified Financials     4.4    
Utilities     4.0    
Retailing     3.8    
Telecommunication Services     3.7    
Automobiles & Components     3.6    
Food & Staples Retailing     3.4    
Health Care Equipment & Services     3.3    
Transportation     2.2    
Consumer Durables & Apparel     1.7    
Household & Personal Products     1.6    
Consumer Services     1.1    
Semiconductors & Semiconductor Equipment     1.1    
Media     0.6    
Real Estate     0.5    
Commercial & Professional Services     0.2    
      100.0 %  

 


2



GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 95.8%  
        Australia — 0.4%  
    18,931     BHP Billiton Ltd     588,818    
    23,697     Woodside Petroleum Ltd     983,267    
    Total Australia     1,572,085    
        Belgium — 0.5%  
    26,561     Anheuser-Busch InBev NV     1,148,407    
    111,806     Dexia SA *      958,953    
    Total Belgium     2,107,360    
        Canada — 0.8%  
    16,000     Bank of Nova Scotia     670,254    
    9,400     Canadian National Railway Co     454,394    
    24,700     Canadian Pacific Railway Ltd     1,182,712    
    21,400     Husky Energy Inc     576,270    
    Total Canada     2,883,630    
        France — 7.5%  
    37,359     ArcelorMittal     1,336,115    
    85,034     AXA     1,942,221    
    82,239     BNP Paribas     6,631,080    
    9,104     Bouygues SA     453,013    
    11,634     Casino Guichard-Perrachon SA     882,798    
    7,730     CNP Assurances     772,246    
    24,134     Compagnie de Saint-Gobain     1,090,360    
    27,221     France Telecom SA     692,286    
    11,805     GDF Suez     498,977    
    7,450     Lafarge SA     634,880    
    30,902     Peugeot SA *      896,942    
    3,325     PPR     387,076    
    32,259     Renault SA *      1,455,580    
    60,286     Sanofi-Aventis     4,104,736    
    31,571     Societe Generale     2,551,872    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        France — continued  
    75,787     Total SA     4,348,637    
    2,608     Vallourec SA     397,427    
    Total France     29,076,246    
        Germany — 2.2%  
      12,577     BASF AG     657,287    
    26,787     Bayerische Motoren Werke AG     1,222,609    
    11,029     Deutsche Bank AG (Registered)     749,058    
    32,694     Deutsche Post AG (Registered)     565,237    
    66,032     Deutsche Telekom AG (Registered)     879,211    
    25,581     Hannover Rueckversicherung AG (Registered) *      1,126,982    
    5,408     MAN SE     414,588    
    4,684     Metro AG     254,117    
    2,027     Muenchener Rueckversicherungs-Gesellschaft AG (Registered)     302,884    
    7,309     Salzgitter AG     697,601    
    1,174     Solarworld AG     25,109    
    35,493     Suedzucker AG     690,617    
    29,521     ThyssenKrupp AG     1,006,805    
    Total Germany     8,592,105    
        Greece — 0.3%  
    35,930     National Bank of Greece SA *      1,128,535    
        Hong Kong — 0.3%  
    41,000     CLP Holdings Ltd     274,332    
    51,900     Esprit Holdings Ltd     314,446    
    94,000     Hong Kong Electric Holdings Ltd     525,474    
    Total Hong Kong     1,114,252    
        Ireland — 0.2%  
    25,410     CRH Plc     650,137    
        Italy — 3.7%  
    295,211     Enel SPA     1,744,646    
    248,498     ENI SPA     5,904,452    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Italy — continued  
    87,940     Mediaset SPA     579,705    
    129,635     Parmalat SPA     333,346    
    11,844     Saipem SPA     318,383    
    116,744     Snam Rete Gas SPA     543,006    
    400,822     Telecom Italia SPA     649,569    
    287,344     Telecom Italia SPA-Di RISP     326,449    
    80,560     Terna SPA     297,231    
    1,017,113     UniCredit SPA *      3,694,730    
    Total Italy     14,391,517    
        Japan — 13.8%  
    13,400     Astellas Pharma Inc     535,596    
    13,000     Canon Inc     496,947    
    20,700     Chubu Electric Power Co Inc     481,284    
    15,200     Chugai Pharmaceutical Co Ltd     309,586    
    157,000     Cosmo Oil Co Ltd     481,890    
    100,000     Daiwa Securities Group Inc     615,870    
    14,800     Denso Corp     430,710    
    5,900     East Japan Railway Co     385,300    
    7,600     Eisai Co Ltd     277,741    
    17,200     Fast Retailing Co Ltd     2,059,375    
    188,000     Fuji Heavy Industries Ltd     812,379    
    10,700     FujiFilm Holdings Corp     318,451    
    106,000     Hitachi Ltd     372,879    
    103,200     Honda Motor Co Ltd     3,235,893    
    13,500     Ibiden Co Ltd     479,312    
    50     INPEX Corp     407,143    
    155,000     Itochu Corp     1,097,098    
    22,700     JFE Holdings Inc     792,215    
    25,900     Kansai Electric Power Co Inc     595,180    
    15,000     Kao Corp     379,910    
    93,000     Kawasaki Kisen Kaisha Ltd     407,697    
    179     KDDI Corp     1,017,581    
    2,230     Keyence Corp     470,584    
    30,700     Komatsu Ltd     553,116    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    33,000     Kubota Corp     272,472    
    7,100     Kyocera Corp     590,061    
    134,000     Marubeni Corp     665,458    
    279,000     Mazda Motor Corp     774,341    
    24,800     Mitsubishi Corp     501,329    
    46,000     Mitsui OSK Lines Ltd     293,359    
    11,200     Murata Manufacturing Co Ltd     530,895    
    17,000     NGK Insulators Ltd     395,575    
    4,800     Nintendo Co Ltd     1,300,911    
    188,500     Nippon Mining Holdings Inc     937,493    
    208,000     Nippon Oil Corp     1,187,606    
    71,000     Nippon Steel Corp     278,359    
    39,300     Nippon Telegraph & Telephone Corp     1,749,556    
    78,000     Nippon Yusen KK     337,415    
    396,100     Nissan Motor Co Ltd     2,763,728    
    66,200     Nomura Holdings Inc     586,615    
    1,319     NTT Docomo Inc     2,030,754    
    15,760     ORIX Corp     1,207,615    
    174,000     Osaka Gas Co Ltd     601,347    
    731     Rakuten Inc     441,568    
    80,000     Ricoh Company Ltd     1,150,902    
    3,500     Rohm Co Ltd     236,236    
    14,100     Sankyo Co Ltd     886,895    
    68,600     Seven & I Holdings Co Ltd     1,655,638    
    36,000     Sharp Corp     415,558    
    32,200     Shin-Etsu Chemical Co Ltd     1,901,443    
    61,200     Showa Shell Sekiyu KK     638,418    
    438,000     Sojitz Corp     935,919    
    58,700     SUMCO Corp     1,197,044    
    137,600     Sumitomo Corp     1,407,781    
    242,000     Sumitomo Metal Industries Ltd     605,597    
    38,000     Sumitomo Metal Mining Co Ltd     584,672    
    224,000     Taisei Corp     491,042    
    27,000     Taisho Pharmaceutical Co Ltd     529,416    
    33,900     Takeda Pharmaceutical Co Ltd     1,363,701    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued  
    33,400     Tokyo Electric Power Co Inc (The)     870,029    
    8,900     Tokyo Electron Ltd     483,369    
    149,000     Tokyo Gas Co Ltd     596,676    
    72,000     TonenGeneral Sekiyu KK     688,355    
    25,700     Toyota Motor Corp     1,095,700    
    65,300     Toyota Tsusho Corp     1,058,096    
    Total Japan     53,252,681    
        Netherlands — 1.4%  
    193,372     Aegon NV *      1,457,820    
    227,850     ING Groep NV *      3,435,513    
    13,071     Koninklijke DSM NV     477,122    
    Total Netherlands     5,370,455    
        Singapore — 1.9%  
    263,000     Capitaland Ltd     676,689    
    42,000     DBS Group Holdings Ltd     368,830    
    1,785,000     Golden Agri-Resources Ltd *      588,362    
    81,000     Oversea-Chinese Banking Corp Ltd     435,139    
    258,000     Sembcorp Industries Ltd     574,886    
    111,200     Singapore Airlines Ltd     993,340    
    81,176     Singapore Airport Terminal Services Ltd     139,285    
    102,000     Singapore Exchange Ltd     591,952    
    108,000     Singapore Technologies Engineering Ltd     194,184    
    527,600     Singapore Telecommunications     1,150,034    
    87,000     United Overseas Bank Ltd     1,009,093    
    146,000     Wilmar International Ltd     663,125    
    Total Singapore     7,384,919    
        Spain — 1.1%  
    64,300     Banco Bilbao Vizcaya Argentaria SA     1,143,209    
    50,432     Banco Santander SA     776,408    
    20,584     Gas Natural SDG SA     433,003    
    48,985     Repsol YPF SA     1,217,557    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Spain — continued  
    21,979     Telefonica SA     555,739    
    Total Spain     4,125,916    
        Sweden — 1.4%  
    60,822     Boliden AB     626,479    
    43,913     Electrolux AB Series B *      912,832    
    71,452     Ericsson LM B Shares     685,630    
    16,121     Hennes & Mauritz AB Class B     895,110    
    89,658     Skandinaviska Enskilda Banken AB Class A *      632,296    
    68,561     Svenska Cellulosa AB Class B     896,224    
    52,837     Swedbank AB Class A *      554,773    
    Total Sweden     5,203,344    
        Switzerland — 1.8%  
    12,275     Credit Suisse Group AG (Registered)     626,258    
    53,177     Novartis AG (Registered)     2,470,237    
    1,879     Swisscom AG (Registered)     651,099    
    3,408     Synthes Inc     399,286    
    143,233     UBS AG (Registered) *      2,636,837    
    Total Switzerland     6,783,717    
        United Kingdom — 12.5%  
    91,629     3i Group Plc     448,360    
    42,220     Antofagasta Plc     521,546    
    106,677     AstraZeneca Plc     4,950,314    
    16,096     Autonomy Corp Plc *      339,473    
    335,701     Aviva Plc     2,198,387    
    928,491     Barclays Plc *      5,683,510    
    33,559     BG Group Plc     550,607    
    166,117     BP Plc     1,423,722    
    30,800     British American Tobacco Plc     935,867    
    28,304     British Sky Broadcasting Group Plc     250,168    
    649,418     BT Group Plc     1,473,813    
    187,517     Cable & Wireless Plc     450,758    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued  
    11,960     Carnival Plc     364,838    
    72,345     Compass Group Plc     382,101    
    66,212     Experian Plc     554,092    
    287,989     GlaxoSmithKline Plc     5,623,789    
    80,626     Home Retail Group Plc     406,455    
    112,656     HSBC Holdings Plc     1,217,644    
    75,566     J Sainsbury Plc     398,620    
    384,209     Kingfisher Plc     1,316,318    
    571,070     Legal & General Group Plc     710,235    
    2,210,882     Lloyds Banking Group Plc     3,958,838    
    91,742     Marks & Spencer Group Plc     504,666    
    28,977     Next Plc     768,626    
    793,203     Old Mutual Plc     1,202,700    
    37,452     Pearson Plc     455,579    
    14,976     Reckitt Benckiser Group Plc     692,452    
    1,598,458     Royal Bank of Scotland Group Plc     1,480,381    
    24,702     Royal Dutch Shell Plc A Shares (Amsterdam)     685,127    
    148,474     Royal Dutch Shell Plc A Shares (London)     4,106,552    
    14,188     SABMiller Plc     327,195    
    48,572     Tesco Plc     295,669    
    167,734     Tomkins Plc     483,711    
    22,986     Tullow Oil Plc     400,285    
    11,149     Vedanta Resources Plc     322,017    
    69,706     Wolseley Plc *      1,631,186    
    232,511     Wolseley Plc (Deferred) *      —    
    63,481     Xstrata Plc     842,225    
    Total United Kingdom     48,357,826    
        United States — 46.0%  
    44,000     3M Co.     3,172,400    
    91,700     Abbott Laboratories     4,147,591    
    15,400     Accenture Ltd.-Class A     508,200    
    6,600     ACE Ltd.     344,388    
    10,300     Alcon Inc     1,333,541    
    38,700     Allstate Corp. (The)     1,137,393    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        United States — continued  
    16,300     Altera Corp.     313,123    
    76,600     Altria Group, Inc.     1,400,248    
    10,900     Amazon.com, Inc. *      884,971    
    16,600     AMDOCS Ltd. *      403,712    
    12,000     Amgen, Inc. *      716,880    
    35,600     Annaly Capital Management, Inc. REIT     617,304    
    14,100     Aon Corp.     588,816    
    8,400     Apollo Group, Inc.-Class A *      544,488    
    21,000     Apple, Inc. *      3,532,410    
    7,600     Assurant, Inc.     227,620    
    39,100     AT&T, Inc.     1,018,555    
    56,200     Automatic Data Processing, Inc.     2,155,270    
    39,800     AutoNation, Inc. *      755,404    
    2,400     AutoZone, Inc. *      353,400    
    92,991     Bank of America Corp.     1,635,712    
    31,400     Baxter International, Inc.     1,787,288    
    20,500     BB&T Corp.     572,770    
    16,900     Becton, Dickinson and Co.     1,176,578    
    14,800     Best Buy Co., Inc.     536,944    
    30,500     Bristol-Myers Squibb Co.     674,965    
    12,900     Broadcom Corp.-Class A *      367,005    
    42,200     CenterPoint Energy, Inc.     523,280    
    19,900     CH Robinson Worldwide, Inc.     1,119,574    
    58,200     Cisco Systems, Inc. *      1,257,120    
    37,400     Coach, Inc.     1,058,046    
    144,900     Coca-Cola Co. (The)     7,066,773    
    19,800     Cognizant Technology Solutions Corp.-Class A *      690,624    
    9,300     Colgate-Palmolive Co.     676,110    
    16,200     Comerica, Inc.     432,054    
    24,200     Computer Sciences Corp. *      1,182,170    
    48,853     ConocoPhillips     2,199,850    
    13,300     Consolidated Edison, Inc.     534,527    
    28,900     Convergys Corp. *      313,276    
    41,600     Corning, Inc.     627,328    
    9,400     CR Bard, Inc.     757,452    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        United States — continued  
    17,600     Denbury Resources, Inc. *      267,872    
    25,700     DirectTV Group (The), Inc. *      636,332    
    30,500     Dow Chemical Co. (The)     649,345    
    23,300     DTE Energy Co.     810,374    
    51,400     Duke Energy Corp.     796,186    
    29,700     Ecolab, Inc.     1,256,013    
    77,200     Eli Lilly & Co.     2,583,112    
    18,300     Emerson Electric Co.     674,721    
    26,800     Expeditors International of Washington, Inc.     875,288    
    6,200     Fastenal Co.     224,440    
    17,692     Fidelity National Financial, Inc.-Class A     265,734    
    11,900     First American Corp.     375,088    
    3,500     First Solar, Inc. *      425,530    
    8,000     Fiserv, Inc. *      386,000    
    13,400     FLIR Systems, Inc. *      308,468    
    69,400     Ford Motor Co. *      527,440    
    20,500     Forest Laboratories, Inc. *      600,035    
    7,400     FPL Group, Inc.     415,732    
    9,700     Freeport-McMoRan Copper & Gold, Inc.     610,906    
    42,700     Gannett Co., Inc.     368,928    
    33,800     General Dynamics Corp.     2,000,622    
    10,100     General Mills, Inc.     603,273    
    11,600     Genuine Parts Co.     429,664    
    45,100     Genworth Financial, Inc.-Class A     476,256    
    10,300     Gilead Sciences, Inc. *      464,118    
    9,600     Goldman Sachs Group (The), Inc.     1,588,416    
    12,100     Google, Inc.-Class A *      5,586,207    
    48,000     Hartford Financial Services Group (The), Inc.     1,138,560    
    19,200     Hewlett-Packard Co.     861,888    
    39,900     Home Depot, Inc.     1,088,871    
    22,000     Hospitality Properties Trust REIT     400,840    
    36,800     Hudson City Bancorp, Inc.     482,816    
    33,400     Illinois Tool Works, Inc.     1,396,788    
    3,900     IntercontinentalExchange, Inc. *      365,820    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        United States — continued  
    15,200     International Business Machines Corp.     1,794,360    
    2,600     ITT Educational Services, Inc. *      272,974    
    227,100     Johnson & Johnson     13,725,924    
    46,800     Kimberly-Clark Corp.     2,829,528    
    9,800     Kohl's Corp. *      505,582    
    17,400     Lexmark International, Inc. *      327,816    
    23,700     Lincoln National Corp.     598,188    
    4,600     Lockheed Martin Corp.     344,908    
    23,700     Lowe's Cos., Inc.     509,550    
    51,100     Macy's, Inc.     793,072    
    28,100     Marathon Oil Corp.     867,447    
    8,800     McAfee, Inc. *      350,064    
    39,100     McDonald's Corp.     2,198,984    
    13,000     Medco Health Solutions, Inc. *      717,860    
    56,900     Medtronic, Inc.     2,179,270    
    143,200     Merck & Co., Inc.     4,643,976    
    49,200     Microsoft Corp.     1,212,780    
    29,700     Morgan Stanley     860,112    
    6,500     Murphy Oil Corp.     370,500    
    8,300     Newfield Exploration Co. *      321,127    
    16,500     Newmont Mining Corp.     663,135    
    34,200     Nike, Inc.-Class B     1,894,338    
    49,000     NiSource, Inc.     647,290    
    6,700     Noble Energy, Inc.     405,082    
    23,400     NVIDIA Corp. *      339,768    
    10,200     Occidental Petroleum Corp.     745,620    
    42,225     Old Republic International Corp.     502,900    
    47,100     Oracle Corp.     1,030,077    
    52,800     Paychex, Inc.     1,493,712    
    14,700     Pepco Holdings, Inc.     210,651    
    94,700     PepsiCo, Inc.     5,366,649    
    13,200     PetroHawk Energy Corp. *      284,196    
    290,200     Pfizer, Inc.     4,846,340    
    16,000     PG&E Corp.     649,440    
    37,700     Philip Morris International, Inc.     1,723,267    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        United States — continued  
    10,600     Pinnacle West Capital Corp.     348,846    
    6,500     PPG Industries, Inc.     360,100    
    18,300     Praxair, Inc.     1,402,146    
    28,000     Procter & Gamble Co. (The)     1,515,080    
    17,500     Progress Energy, Inc.     691,775    
    30,700     Qualcomm, Inc.     1,425,094    
    6,200     Range Resources Corp.     299,894    
    66,200     Regions Financial Corp.     387,932    
    14,400     Rockwell Collins, Inc.     662,976    
    9,400     Ryder System, Inc.     357,200    
    19,700     SanDisk Corp. *      348,690    
    13,800     Sigma-Aldrich Corp.     701,040    
    26,200     Southern Co.     817,440    
    19,900     Southern Copper Corp.     562,374    
    12,900     Southwestern Energy Co. *      475,494    
    11,700     St Jude Medical, Inc. *      450,918    
    11,200     State Street Corp.     587,776    
    29,500     Stryker Corp.     1,223,070    
    9,200     Sunoco, Inc.     247,480    
    24,542     Supervalu, Inc.     352,178    
    28,100     Symantec Corp. *      424,872    
    49,000     Sysco Corp.     1,249,010    
    15,800     TD Ameritrade Holding Corp. *      303,992    
    22,000     Texas Instruments, Inc.     540,980    
    26,300     TJX Cos. (The), Inc.     945,485    
    9,600     Torchmark Corp.     409,056    
    25,600     Travelers Cos. (The), Inc.     1,290,752    
    25,400     Tyco Electronics Ltd.     579,628    
    18,500     United Parcel Service, Inc.-Class B     989,010    
    47,300     United Technologies Corp.     2,807,728    
    38,815     UnitedHealth Group, Inc.     1,086,820    
    68,100     Valero Energy Corp.     1,276,194    
    36,600     Verizon Communications, Inc.     1,136,064    
    9,800     VF Corp.     681,688    
    7,500     Visa, Inc.-Class A     533,250    

 

See accompanying notes to the financial statements.


13


GMO Developed World Stock Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares /
Par Value		   Description   Value ($)  
        United States — continued  
    148,500     Wal-Mart Stores, Inc.     7,554,195    
    18,200     WellPoint, Inc. *      961,870    
    13,800     Western Digital Corp. *      473,064    
    25,700     Western Union Co.     463,628    
    6,400     Whirlpool Corp.     410,944    
    9,700     WW Grainger, Inc.     848,459    
    36,300     Wyeth     1,736,955    
    37,200     Xcel Energy, Inc.     734,700    
    19,600     Xilinx, Inc.     435,904    
    22,700     XL Capital Ltd.-Class A     393,845    
    11,700     Yum! Brands, Inc.     400,725    
    Total United States     177,399,651    
    TOTAL COMMON STOCKS (COST $422,349,322)     369,394,376    
        SHORT-TERM INVESTMENTS — 3.4%  
USD     2,500,000     Allied Irish Bank Time Deposit, 0.03%, due 09/01/09     2,500,000    
CAD     23,137     Bank of America Time Deposit, 0.04%, due 09/01/09     21,134    
USD     2,500,000     Bank of Ireland Time Deposit, 0.03%, due 09/01/09     2,500,000    
AUD     11,964     Brown Brothers Harriman Time Deposit, 2.17%, due 09/01/09     10,112    
CHF     11,053     Brown Brothers Harriman Time Deposit, 0.02%, due 09/01/09     10,439    
DKK     68,906     Brown Brothers Harriman Time Deposit, 0.30%, due 09/01/09     13,272    
EUR     12,882     Brown Brothers Harriman Time Deposit, 0.06%, due 09/01/09     18,468    
HKD     77,503     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,000    
NOK     57,943     Brown Brothers Harriman Time Deposit, 0.35%, due 09/01/09     9,629    
SEK     71,741     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,078    
USD     277,621     Citibank Time Deposit, 0.03%, due 09/01/09     277,621    
USD     2,500,000     Danske Bank Time Deposit, 0.03%, due 09/01/09     2,500,000    
USD     2,500,000     DnB Nor Bank Time Deposit, 0.03%, due 09/01/09     2,500,000    
JPY     2,365,720     HSBC Bank (Hong Kong) Time Deposit, 0.01%, due 09/01/09     25,424    
SGD     73,065     JPMorgan Chase Time Deposit, 0.01%, due 09/01/09     50,707    
USD     2,500,000     Societe Generale Time Deposit, 0.03%, due 09/01/09     2,500,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $12,956,884)     12,956,884    
            TOTAL INVESTMENTS — 99.2%
(Cost $435,306,206)		     382,351,260    
            Other Assets and Liabilities (net) — 0.8%     3,236,581    
    TOTAL NET ASSETS — 100.0%   $ 385,587,841    

 

See accompanying notes to the financial statements.


14


GMO Developed World Stock Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys †   
10/23/09   CAD     6,293,907     $ 5,749,672     $ 63,708    
10/23/09   CAD     6,293,907       5,749,672       40,602    
10/23/09   CHF     6,060,548       5,726,120       99,915    
10/23/09   CHF     6,060,548       5,726,120       106,905    
10/23/09   DKK     2,226,349       428,349       6,320    
10/23/09   JPY     623,068,551       6,698,457       112,770    
10/23/09   SEK     35,910,405       5,045,777       104,245    
10/23/09   SEK     35,910,405       5,045,777       102,641    
    $ 40,169,944     $ 637,106    
Sales #   
10/23/09   AUD     818,827     $ 689,244     $ (18,625 )  
10/23/09   EUR     5,866,715       8,410,711       (150,142 )  
10/23/09   EUR     5,866,715       8,410,711       (124,434 )  
10/23/09   EUR     4,072,644       5,838,674       (620 )  
10/23/09   GBP     3,455,864       5,625,521       83,557    
10/23/09   HKD     6,951,868       897,330       5    
10/23/09   SGD     2,239,503       1,553,428       6,332    
10/23/09   SGD     6,379,198       4,424,922       (31,005 )  
    $ 35,850,541     $ (234,932 )  

 

†  Fund buys foreign currency; sells USD.

#  Fund sells foreign currency; buys USD.

See accompanying notes to the financial statements.


15


GMO Developed World Stock Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  21     CAC40   September 2009   $ 1,103,094     $ 74,719    
  5     DAX   September 2009     981,602       62,127    
  38     FTSE/MIB   September 2009     6,133,076       675,958    
  61     FTSE 100   September 2009     4,849,186       496,770    
  27     MSCI Singapore   September 2009     1,173,801       (13,415 )  
  34     TOPIX   September 2009     3,508,618       67,672    
                $ 17,749,377     $ 1,363,831    
Sales      
  13     IBEX 35   September 2009   $ 2,121,429     $ (150,239 )  
  47     S&P 500 E-Mini Index   September 2009     2,396,413       (35,250 )  
  19     S&P Toronto 60   September 2009     2,262,471       (154,224 )  
  14     SPI 200   September 2009     1,321,255       (120,078 )  
                $ 8,101,568     $ (459,791 )  

 

As of August 31, 2009, 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.

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
SEK - Swedish Krona
SGD - Singapore Dollar
USD - United States 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, 2009 (Unaudited)

Assets:  
Investments, at value (cost $435,306,206) (Note 2)   $ 382,351,260    
Dividends receivable     898,760    
Foreign taxes receivable     67,831    
Unrealized appreciation on open forward currency contracts (Note 2)     727,000    
Receivable for collateral on open futures contracts (Note 2)     2,350,911    
Receivable for expenses reimbursed by Manager (Note 3)     28,737    
Total assets     386,424,499    
Liabilities:  
Foreign currency due to custodian     12,078    
Payable to affiliate for (Note 3):  
Management fee     144,230    
Shareholder service fee     41,381    
Trustees and Chief Compliance Officer of GMO Trust fees     745    
Payable for variation margin on open futures contracts (Note 2)     59,595    
Unrealized depreciation on open forward currency contracts (Note 2)     324,826    
Miscellaneous payable     101,852    
Accrued expenses     151,951    
Total liabilities     836,658    
Net assets   $ 385,587,841    
Net assets consist of:  
Paid-in capital   $ 520,609,659    
Accumulated undistributed net investment income     5,241,914    
Accumulated net realized loss     (88,616,021 )  
Net unrealized depreciation     (51,647,711 )  
    $ 385,587,841    
Net assets attributable to:  
Class III shares   $ 225,068,653    
Class IV shares   $ 160,519,188    
Shares outstanding:  
Class III     14,025,284    
Class IV     9,991,703    
Net asset value per share:  
Class III   $ 16.05    
Class IV   $ 16.07    

 

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, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $309,575)   $ 5,107,359    
Interest     1,748    
Total investment income     5,109,107    
Expenses:  
Management fee (Note 3)     725,899    
Shareholder service fee – Class III (Note 3)     137,937    
Shareholder service fee – Class IV (Note 3)     69,353    
Custodian and fund accounting agent fees     122,250    
Audit and tax fees     38,088    
Transfer agent fees     21,160    
Legal fees     6,072    
Trustees fees and related expenses (Note 3)     3,208    
Registration fees     1,012    
Miscellaneous     4,600    
Total expenses     1,129,579    
Fees and expenses reimbursed by Manager (Note 3)     (191,710 )  
Expense reductions (Note 2)     (230 )  
Net expenses     937,639    
Net investment income (loss)     4,171,468    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (40,202,677 )  
Closed futures contracts     (1,120,387 )  
Foreign currency, forward contracts and foreign currency related transactions     1,282,784    
Net realized gain (loss)     (40,040,280 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     143,647,393    
Open futures contracts     2,724,386    
Foreign currency, forward contracts and foreign currency related transactions     1,434,387    
Net unrealized gain (loss)     147,806,166    
Net realized and unrealized gain (loss)     107,765,886    
Net increase (decrease) in net assets resulting from operations   $ 111,937,354    

 

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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 4,171,468     $ 11,358,614    
Net realized gain (loss)     (40,040,280 )     (46,539,485 )  
Change in net unrealized appreciation (depreciation)     147,806,166       (185,489,806 )  
Net increase (decrease) in net assets from operations     111,937,354       (220,670,677 )  
Distributions to shareholders from:  
Net investment income  
Class III     (1,541,646 )     (7,860,790 )  
Class IV     (1,181,946 )     (6,163,416 )  
Total distributions from net investment income     (2,723,592 )     (14,024,206 )  
Net realized gains  
Class III     —       (2,479,946 )  
Class IV     —       (1,952,911 )  
Total distributions from net realized gains     —       (4,432,857 )  
      (2,723,592 )     (18,457,063 )  
Net share transactions (Note 7):  
Class III     7,078,732       (17,180,224 )  
Class IV     1,181,946       8,116,327    
Increase (decrease) in net assets resulting from net share
transactions		     8,260,678       (9,063,897 )  
Purchase premiums and redemption fees (Notes 2 and 7):  
Class III     114,815       173,735    
Increase in net assets resulting from purchase premiums
and redemption fees		     114,815       173,735    
Total increase (decrease) in net assets resulting from net share
transactions, purchase premiums and redemption fees		     8,375,493       (8,890,162 )  
Total increase (decrease) in net assets     117,589,255       (248,017,902 )  
Net assets:  
Beginning of period     267,998,586       516,016,488    
End of period (including accumulated undistributed net investment
income of $5,241,914 and $3,794,038, respectively)		   $ 385,587,841     $ 267,998,586    

 

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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006(a)   
Net asset value, beginning of period   $ 11.34     $ 21.88     $ 24.58     $ 22.24     $ 20.00    
Income (loss) from investment operations:  
Net investment income (loss)†      0.18       0.51       0.54       0.43       0.15    
Net realized and unrealized gain (loss)     4.65       (10.20 )     (0.74 )     2.84       2.15    
Total from investment operations     4.83       (9.69 )     (0.20 )     3.27       2.30    
Less distributions to shareholders:  
From net investment income     (0.12 )     (0.64 )     (0.67 )     (0.32 )     (0.06 )  
From net realized gains     —       (0.21 )     (1.83 )     (0.61 )     —    
Total distributions     (0.12 )     (0.85 )     (2.50 )     (0.93 )     (0.06 )  
Net asset value, end of period   $ 16.05     $ 11.34     $ 21.88     $ 24.58     $ 22.24    
Total Return(b)      42.73 %**      (45.56 )%     (1.73 )%     14.87 %     11.51 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 225,069     $ 155,560     $ 309,609     $ 282,446     $ 179,466    
Net expenses to average daily net assets     0.60 %(c)*      0.61 %(d)      0.62 %(d)      0.62 %     0.62 %*   
Net investment income to average daily
net assets		     2.57 %*      2.79 %     2.15 %     1.83 %     1.27 %*   
Portfolio turnover rate     25 %**      50 %     53 %     43 %     15 %††**   
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.12 %*      0.12 %     0.11 %     0.12 %     0.20 %*   
Purchase premiums and redemption
fees consisted of the following per
share amounts:† 		   $ 0.01     $ 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.

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

†  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, 2009 		  Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006(a)   
Net asset value, beginning of period   $ 11.35     $ 21.90     $ 24.59     $ 22.25     $ 20.24    
Income (loss) from investment operations:  
Net investment income (loss)†      0.18       0.51       0.56       0.45       0.12    
Net realized and unrealized gain (loss)     4.66       (10.20 )     (0.74 )     2.82       1.95    
Total from investment operations     4.84       (9.69 )     (0.18 )     3.27       2.07    
Less distributions to shareholders:  
From net investment income     (0.12 )     (0.65 )     (0.68 )     (0.32 )     (0.06 )  
From net realized gains     —       (0.21 )     (1.83 )     (0.61 )     —    
Total distributions     (0.12 )     (0.86 )     (2.51 )     (0.93 )     (0.06 )  
Net asset value, end of period   $ 16.07     $ 11.35     $ 21.90     $ 24.59     $ 22.25    
Total Return(b)      42.79 %**      (45.52 )%     (1.66 )%     14.88 %     10.23 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 160,519     $ 112,438     $ 206,408     $ 209,937     $ 137,409    
Net expenses to average daily net assets     0.55 %(c)*      0.56 %(d)      0.57 %(d)      0.57 %     0.57 %*   
Net investment income to average daily
net assets		     2.61 %*      2.82 %     2.22 %     1.93 %     1.20 %*   
Portfolio turnover rate     25 %**      50 %     53 %     43 %     15 %††**   
Fees and expenses reimbursed by the
Manager to average daily net assets:		     0.12 %*      0.12 %     0.11 %     0.12 %     0.17 %*   
Redemption fees consisted of the
following per share amounts:† 		     0.00 (e)      — (f)      — (f)    $ 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.

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

(e)  For the period ended August 31, 2009, the class received no purchase premiums or redemption fees.

(f)  For the years ended February 28, 2009 and February 29, 2008, the class received no purchase premiums or redemptions 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, 2009 (Unaudited)

1.  Organization

GMO Developed World Stock Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 MSCI World Index. The Fund typically makes equity investments in companies tied economically to the world's developed markets, including the U.S. Under normal circumstances, the Fund invests at least 80% of its assets in stocks tied economically to developed markets. The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, futures, and swap contracts. The Fund also may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

Throughout the period ended August 31, 2009, the Fund had two classes of shares outstanding: Class III and Class IV. Each class of shares bears a different shareholder service fee.

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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). Unlisted securities for which market quotations are readily available are generally valued at the most recent quoted bid price.


22


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Debt instruments with a remaining maturity of sixty days or less are generally valued at amortized cost. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 48.71% of the net assets of the Fund were valued using fair value prices based on models used by a third party vendor and are classified as using Level 2 inputs in the table below.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

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


23


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Common Stocks  
Australia   $ 588,818     $ 983,267     $ —     $ 1,572,085    
Belgium     —       2,107,360       —       2,107,360    
Canada     2,883,630       —       —       2,883,630    
France     692,286       28,383,960       —       29,076,246    
Germany     —       8,592,105       —       8,592,105    
Greece     —       1,128,535       —       1,128,535    
Hong Kong     —       1,114,252       —       1,114,252    
Ireland     —       650,137       —       650,137    
Italy     —       14,391,517       —       14,391,517    
Japan     —       53,252,681       —       53,252,681    
Netherlands     —       5,370,455       —       5,370,455    
Singapore     —       7,384,919       —       7,384,919    
Spain     —       4,125,916       —       4,125,916    
Sweden     —       5,203,344       —       5,203,344    
Switzerland     —       6,783,717       —       6,783,717    
United Kingdom     —       48,357,826       —       48,357,826    
United States     177,399,651       —       —       177,399,651    
TOTAL COMMON STOCKS     181,564,385       187,829,991       —       369,394,376    
Short-Term Investments     12,956,884       —       —       12,956,884    
Total Investments     194,521,269       187,829,991       —       382,351,260    
Derivatives  
Forward Currency Contracts     —       727,000       —       727,000    
Futures Contracts     —       1,377,246       —       1,377,246    
Total   $ 194,521,269     $ 189,934,237     $ —     $ 384,455,506    

 


24


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Forward Currency Contracts   $ —     $ (324,826 )   $ —     $ (324,826 )  
Futures Contracts     (189,474 )     (283,732 )     —       (473,206 )  
Total   $ (189,474 )   $ (608,558 )   $ —     $ (798,032 )  

 

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, 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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to


25


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

meet the terms of the contracts. Most forward currency contracts are not collateralized. 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. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign futures on those exchanges do not reflect events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign futures using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor based on that vendor's proprietary models. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a


26


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with


27


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exposure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the


28


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions. The Fund had no swap agreements outstanding at the end of the period.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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 certain 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


29


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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.

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

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $32,763,918.

As of February 28, 2009, 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:

2/28/2017   $ (12,590,155 )  
Total   $ (12,590,155 )  

 

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:


Aggregate Cost		   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 442,882,816     $ 17,106,701     $ (77,638,257 )   $ (60,531,556 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of the statute of limitations by U.S. federal and state tax authorities for tax returns filed.


30


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Security transactions and related investment income

Security transactions are accounted for on the trade date in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Purchases and redemptions of Fund shares

As of August 31, 2009, the premium on cash purchases of Fund shares and the fee on cash redemptions 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. The Fund may impose a new purchase premium and/or redemption fee, or modify or eliminate an existing fee, at any time. Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or r edemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of the Fund's shares if the Fund will not incur transaction costs or will incur reduced transaction costs. The Manager will waive or reduce the purchase premium relating to the in-kind portion of a purchase of the Fund's shares except to the extent of estimated or known transaction costs (e.g., stamp duties or transfer fees)


31


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

incurred by the Fund in connection with the transfer of the purchasing shareholder's securities to the Fund. In-kind redemptions are generally not subject to redemption fees except when they include a cash component. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may charge a redemption fee equal to known or estimated costs. Purchase premiums or redemption fees will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with GMO Trust to transmit orders for purchases and redemptions to the Manager the day after those orders are received.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

Other principal risks of an investment in the Fund include Market Risk — Value Securities (risk that the price of the Fund's securities may not increase to what the Manager believes to be their fundamental value or that the Manager may have overestimated their fundamental value), Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a derivatives counterparty or borrower of the Fund's securities), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's


32


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index). The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives


33


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictability of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of


34


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (rights and
warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts* 		     —       —       —       1,377,246       —       1,377,246    
Unrealized appreciation on
forward currency contracts		     —       727,000       —       —       —       727,000    
Unrealized appreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ 727,000     $ —     $ 1,377,246     $ —     $ 2,104,246    
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       (473,206 )     —       (473,206 )  
Unrealized depreciation on
forward currency contracts		     —       (324,826 )     —       —       —       (324,826 )  
Unrealized depreciation on swap
agreements		     —       —       —       —       —       —    
Total   $ —     $ (324,826 )   $ —     $ (473,206 )   $ —     $ (798,032 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's


35


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Notes to Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (rights and warrants)   $ —     $ —     $ —     $ (16,156 )   $ —     $ (16,156 )  
Futures contracts     —       —       —       (1,120,387 )     —       (1,120,387 )  
Written options     —       —       —       —       —       —    
Forward currency contracts     —       1,183,206       —       —       —       1,183,206    
Total   $ —     $ 1,183,206     $ —     $ (1,136,543 )   $ —     $ 46,663    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (rights and warrants)   $ —     $ —     $ —     $ 102,638     $ —     $ 102,638    
Futures contracts     —       —       —       2,724,386       —       2,724,386    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       1,419,514       —       —       —       1,419,514    
Total   $ —     $ 1,419,514     $ —     $ 2,827,024     $ —     $ 4,246,538    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Futures   Rights/Warrants  
Average notional amount outstanding   $ 86,609,614     $ 25,271,938     $ 73,322    
Highest notional amount outstanding     113,038,586       30,002,853       463,989    
Lowest notional amount outstanding     71,331,014       20,194,751       —    

 


36


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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 clientand shareholder service,reporting, and other support. Pursuant to the Shareholder Service Plan, theshareholder 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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.45% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities lending fees and expenses, interest expense, transfer taxes, and other investment-related costs (including expenses associated with investments in any company that is an investment company (including an exchange-traded fun d) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.45% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.45% of the Fund's average daily net assets.

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, 2009, was $2,564 and $1,472, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $92,614,488 and $77,125,697, respectively.


37


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 51.84% 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.

As of August 31, 2009, 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 each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     1,740,173     $ 25,939,524       1,345,030     $ 22,152,501    
Shares issued to shareholders
in reinvestment of distributions		     75,777       1,060,885       465,528       7,953,416    
Shares repurchased     (1,509,767 )     (19,921,677 )     (2,243,384 )     (47,286,141 )  
Purchase premiums     —       65,011       —       55,520    
Redemption fees     —       49,804       —       118,215    
Net increase (decrease)     306,183     $ 7,193,547       (432,826 )   $ (17,006,489 )  

 


38


GMO Developed World Stock Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     —     $ —       —     $ —    
Shares issued to shareholders
in reinvestment of distributions		     84,364       1,181,946       482,092       8,116,327    
Shares repurchased     —       —       —       —    
Purchase premiums     —       —       —       —    
Redemption fees     —       —       —       —    
Net increase (decrease)     84,364     $ 1,181,946       482,092     $ 8,116,327    

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


39



GMO Developed World Stock Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature.


40


GMO Developed World Stock Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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, including the effect of recent market events and c hanges in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 fa ctors, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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


41


GMO Developed World Stock Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

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 15, 2009, 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, 2009.


42


GMO Developed World Stock Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.60 %   $ 1,000.00     $ 1,427.30     $ 3.67    
2) Hypothetical     0.60 %   $ 1,000.00     $ 1,022.18     $ 3.06    
Class IV  
1) Actual     0.55 %   $ 1,000.00     $ 1,427.90     $ 3.37    
2) Hypothetical     0.55 %   $ 1,000.00     $ 1,022.43     $ 2.80    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.


43



GMO International Growth Equity Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


For a free copy of the Fund's proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) 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, 2009 (Unaudited)

Asset Class Summary   % of Total Net Assets  
Common Stocks     96.5 %  
Short-Term Investments     2.5    
Forward Currency Contracts     0.1    
Futures Contracts     0.1    
Other     0.8    
      100.0 %  
Country Summary   % of Equity Investments  
United Kingdom     24.2 %  
Japan     22.4    
Switzerland     12.6    
Australia     5.9    
France     5.4    
Spain     5.0    
Germany     4.8    
Sweden     4.2    
Canada     4.1    
Belgium     2.0    
Denmark     1.9    
Netherlands     1.9    
Hong Kong     1.7    
Greece     1.1    
Singapore     1.0    
Portugal     0.5    
Finland     0.4    
Italy     0.4    
Norway     0.4    
Ireland     0.1    
      100.0 %  

 


1


GMO International Growth Equity Fund

(A Series of GMO Trust)
Investments Concentration Summary — (Continued)
August 31, 2009 (Unaudited)

Industry Group Summary   % of Equity Investments  
Pharmaceuticals, Biotechnology & Life Sciences     21.4 %  
Food, Beverage & Tobacco     9.9    
Telecommunication Services     8.4    
Materials     7.1    
Retailing     5.2    
Household & Personal Products     4.5    
Banks     4.4    
Energy     4.2    
Utilities     4.2    
Software & Services     3.9    
Food & Staples Retailing     3.7    
Technology Hardware & Equipment     3.2    
Capital Goods     2.9    
Health Care Equipment & Services     2.5    
Diversified Financials     2.4    
Consumer Durables & Apparel     2.2    
Transportation     2.0    
Commercial & Professional Services     2.0    
Media     1.7    
Automobiles & Components     1.6    
Insurance     1.2    
Consumer Services     0.7    
Semiconductors & Semiconductor Equipment     0.5    
Real Estate     0.2    
      100.0 %  

 


2



GMO International Growth Equity Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        COMMON STOCKS — 96.5%        
        Australia — 5.7%        
  480,384     AMP Ltd     2,579,319    
  187,432     Australian Stock Exchange Ltd     5,242,535    
  365,463     BHP Billiton Ltd     11,367,127    
  772,562     Brambles Ltd     4,852,429    
  128,581     Cochlear Ltd     6,110,382    
  324,080     CSL Ltd     8,808,150    
  597,549     Foster's Group Ltd     2,764,133    
  1,100,514     Harvey Norman Holdings Ltd     3,661,357    
  189,243     JB Hi-Fi Ltd     2,848,390    
  1,374,391     Lihir Gold Ltd *      3,180,550    
  278,553     Newcrest Mining Ltd     7,096,977    
  94,808     Orica Ltd     1,809,875    
  464,303     Origin Energy Ltd     6,005,523    
  541,706     QBE Insurance Group Ltd     10,468,429    
  81,637     Rio Tinto Ltd     3,880,228    
  2,668,806     Telstra Corp Ltd     7,347,662    
  249,486     Westpac Banking Corp     5,124,223    
  362,401     Woodside Petroleum Ltd     15,037,227    
  1,492,552     Woolworths Ltd     35,287,284    
  107,283     WorleyParsons Ltd     2,585,362    
    Total Australia     146,057,162    
        Belgium — 1.9%        
  880,409     Anheuser-Busch InBev NV     38,065,888    
  96,576     Belgacom SA     3,627,693    
  23,836     Colruyt SA     5,472,794    
  24,382     Delhaize Group     1,635,098    
    Total Belgium     48,801,473    
        Canada — 3.9%        
  55,600     Agnico-Eagle Mines Ltd     3,188,969    
  284,000     Barrick Gold Corp     9,800,886    
  304,800     Canadian National Railway Co     14,733,972    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Canada — continued        
  85,800     Canadian Pacific Railway Ltd     4,108,368    
  257,000     Eldorado Gold Corp *      2,652,752    
  140,300     Enbridge Inc     5,241,626    
  9,300     Fairfax Financial Holdings Ltd     3,161,703    
  60,800     First Quantum Minerals Ltd     3,600,515    
  48,100     Husky Energy Inc     1,295,262    
  76,100     IGM Financial Inc     2,843,106    
  43,900     Imperial Oil Ltd     1,578,756    
  93,200     Kinross Gold Corp     1,769,076    
  103,100     Metro Inc Class A     3,478,889    
  178,900     Research In Motion Ltd *      13,130,500    
  168,100     Rogers Communications Inc Class B     4,628,028    
  317,300     Shaw Communications Inc Class B     5,446,053    
  228,200     Shoppers Drug Mart Corp     8,963,325    
  157,300     Teck Cominco Ltd Class B *      3,796,178    
  87,200     Toronto Dominion Bank (The)     5,390,908    
  270,700     Yamana Gold Inc     2,490,020    
    Total Canada     101,298,892    
        Denmark — 1.8%        
  213     AP Moller-Maersk A/S Class A     1,475,497    
  198     AP Moller-Maersk A/S Class B     1,424,864    
  49,682     Carlsberg A/S Class B     3,567,483    
  122,286     H Lundbeck A/S     2,412,563    
  574,582     Novo-Nordisk A/S Class B     35,054,736    
  41,524     Novozymes A/S Class B     3,565,232    
    Total Denmark     47,500,375    
        Finland — 0.4%        
  121,451     Alma Media Corp     1,203,264    
  71,919     Kone Oyj Class B     2,507,143    
  469,409     Nokia Oyj     6,589,482    
    Total Finland     10,299,889    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        France — 5.3%        
  46,764     Air Liquide SA     5,002,261    
  25,138     ArcelorMittal     899,041    
  127,885     BNP Paribas     10,311,599    
  20,664     Christian Dior SA     1,919,342    
  124,549     Danone SA     6,790,615    
  54,092     Dassault Systemes SA     2,770,571    
  68,842     Electricite de France     3,614,589    
  100,893     Essilor International SA     5,458,557    
  106,831     France Telecom SA     2,716,933    
  63,085     Hermes International     9,352,663    
  36,454     Iliad SA     3,740,359    
  131,797     L'Oreal SA     13,010,655    
  38,736     Neopost SA     3,197,058    
  117,460     Publicis Groupe     4,329,238    
  675,691     Sanofi-Aventis     46,006,262    
  318,150     SES     6,245,956    
  84,834     Technip SA     5,260,831    
  82,239     Total SA     4,718,851    
    Total France     135,345,381    
        Germany — 4.7%        
  90,085     Adidas AG     4,248,743    
  119,392     Aixtron AG     2,348,835    
  56,435     Aurubis AG     2,151,980    
  75,300     BASF AG     3,935,256    
  106,132     Beiersdorf AG     5,387,892    
  372,544     Deutsche Bank AG (Registered)     25,302,125    
  953,047     Deutsche Telekom AG (Registered)     12,689,748    
  18,249     Fielmann AG     1,176,950    
  137,201     Fresenius Medical Care AG & Co     6,156,203    
  67,867     MTU Aero Engines Holding AG     2,869,643    
  10,739     Puma AG Rudolf Dassler Sport     3,029,839    
  189,890     Qiagen NV *      3,910,605    
  845,272     SAP AG     41,272,656    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Germany — continued        
  37,670     Software AG     2,891,150    
  147,031     Suedzucker AG     2,860,904    
    Total Germany     120,232,529    
        Greece — 1.0%        
  107,533     Alpha Bank A.E. *      1,785,524    
  135,578     EFG Eurobank Ergasias *      1,903,675    
  256,666     National Bank of Greece SA *      8,061,693    
  434,361     OPAP SA     10,608,914    
  139,286     Piraeus Bank SA *      2,190,156    
  88,155     Public Power Corp SA *      2,078,831    
    Total Greece     26,628,793    
        Hong Kong — 1.6%        
  1,721,500     CLP Holdings Ltd     11,518,587    
  885,500     Esprit Holdings Ltd     5,364,974    
  376,600     Hang Seng Bank Ltd     5,348,055    
  3,579,400     Hong Kong & China Gas     7,760,264    
  86,800     Hong Kong Aircraft Engineering Co Ltd     1,016,397    
  1,344,000     Hong Kong Electric Holdings Ltd     7,513,159    
  850,000     Li & Fung Ltd     2,825,716    
  65,000     Sun Hung Kai Properties Ltd     877,021    
    Total Hong Kong     42,224,173    
        Ireland — 0.1%        
  124,498     CRH Plc     3,185,392    
        Italy — 0.4%        
  161,890     Ansaldo STS SPA     3,273,388    
  66,780     ENI SPA     1,586,730    
  522,458     Intesa San Paolo *      2,270,221    
  1,507,953     Parmalat SPA     3,877,580    
    Total Italy     11,007,919    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — 21.7%        
  40,200     ABC-Mart Inc     1,166,540    
  81,300     Aisin Seiki Co Ltd     2,032,858    
  269,000     Asahi Glass Co Ltd     2,339,710    
  327,300     Astellas Pharma Inc     13,082,124    
  225,050     Canon Inc     8,602,911    
  692     Central Japan Railway Co     4,675,241    
  198,000     Chubu Electric Power Co Inc     4,603,582    
  286,500     Chugai Pharmaceutical Co Ltd     5,835,282    
  365,000     Cosmo Oil Co Ltd     1,120,318    
  226,100     Culture Convenience Club Co Ltd     1,670,510    
  206,400     Daiichi Sankyo Co Ltd     4,392,793    
  67,800     Daikin Industries Ltd     2,389,964    
  65,700     Daito Trust Construction Co Ltd     3,130,975    
  193,600     Denso Corp     5,634,155    
  49,600     East Japan Railway Co     3,239,130    
  269,800     Eisai Co Ltd     9,859,800    
  170,600     Elpida Memory Inc *      2,660,077    
  51,600     Fanuc Ltd     4,200,429    
  125,100     Fast Retailing Co Ltd     14,978,362    
  69,700     FujiFilm Holdings Corp     2,074,398    
  431,000     Fujitsu Ltd     2,893,960    
  330,000     GS Yuasa Corp     2,873,778    
  1,025,000     Hankyu Hanshin Holdings Inc     4,907,837    
  44,300     Hirose Electric Co Ltd     5,468,296    
  117,200     Hisamitsu Pharmaceutical Co Inc     4,515,251    
  410,000     Hitachi Ltd     1,442,267    
  153,000     Hokuriku Electric Power Co     3,705,985    
  363,900     Honda Motor Co Ltd     11,410,286    
  228,500     Hoya Corp     5,148,578    
  58,300     Ibiden Co Ltd     2,069,919    
  467     INPEX Corp     3,802,719    
  85,300     Ito En Ltd     1,564,250    
  161,000     Itochu Corp     1,139,566    
  1,151     Japan Tobacco Inc     3,337,301    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  84,000     JFE Holdings Inc     2,931,544    
  120,000     JGC Corp     2,221,450    
  684     Kakaku.com Inc     2,556,258    
  689,000     Kao Corp     17,450,534    
  1,034     KDDI Corp     5,878,096    
  50,130     Keyence Corp     10,578,653    
  1,077,000     Kintetsu Corp     4,663,882    
  152,500     Komatsu Ltd     2,747,561    
  138,000     Kuraray Co Ltd     1,503,434    
  138,500     Lawson Inc     5,996,947    
  456,000     Marubeni Corp     2,264,543    
  106,700     Mitsubishi Corp     2,156,930    
  1,100,900     Mizuho Financial Group Inc     2,678,386    
  71,300     Murata Manufacturing Co Ltd     3,379,715    
  46,300     Nidec Corp     3,330,169    
  215,000     Nikon Corp     3,694,279    
  55,600     Nintendo Co Ltd     15,068,888    
  346,000     Nippon Electric Glass Co Ltd     3,589,389    
  880,000     Nippon Mining Holdings Inc     4,376,624    
  287,000     Nippon Yusen KK     1,241,515    
  535,900     Nissan Motor Co Ltd     3,739,161    
  70,200     Nissha Printing Co Ltd     3,697,230    
  116,800     Nitori Co Ltd     9,022,959    
  147,000     Nitto Denko Corp     4,457,941    
  144,000     Nomura Research Institute Ltd     3,429,059    
  9,209     NTT Docomo Inc     14,178,329    
  784,000     Odakyu Electric Railway Co Ltd     7,037,055    
  1,288,000     OJI Paper Co Ltd     6,068,729    
  89,000     Olympus Corp     2,412,866    
  53,100     Ono Pharmaceutical Co Ltd     2,610,272    
  32,300     Oriental Land Co Ltd     2,183,700    
  25,000     ORIX Corp     1,915,633    
  1,086,000     Osaka Gas Co Ltd     3,753,234    
  250,000     Pacific Metals Co Ltd     2,093,662    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  10,994     Rakuten Inc     6,641,032    
  321,300     Resona Holdings Inc     4,376,564    
  27,200     Rohm Co Ltd     1,835,891    
  88,600     Sankyo Co Ltd     5,572,972    
  1,054,000     Sanyo Electric Co Ltd *      2,841,110    
  85,600     Secom Co Ltd     3,860,748    
  719,500     Seven & I Holdings Co Ltd     17,364,890    
  686     Seven Bank Ltd     1,740,679    
  677,000     Sharp Corp     7,814,803    
  27,200     Shimamura Co Ltd     2,434,379    
  299,400     Shin-Etsu Chemical Co Ltd     17,679,876    
  434,000     Shionogi & Co Ltd     10,610,541    
  225,000     Shiseido Co Ltd     3,956,174    
  427,600     SoftBank Corp     9,574,793    
  95,500     Stanley Electric Co Ltd     1,924,722    
  426,900     Sumitomo Electric Industries Ltd     5,507,913    
  929,000     Sumitomo Metal Industries Ltd     2,324,791    
  480,000     Sumitomo Metal Mining Co Ltd     7,385,334    
  187,200     Suzuki Motor Corp     4,461,322    
  666,700     Takeda Pharmaceutical Co Ltd     26,819,458    
  241,400     Terumo Corp     12,697,652    
  364,000     Tobu Railway Co Ltd     2,285,873    
  404,500     Tohoku Electric Power Co Inc     8,754,782    
  732,900     Tokyo Electric Power Co Inc (The)     19,091,137    
  90,500     Tokyo Electron Ltd     4,915,152    
  763,000     Tokyo Gas Co Ltd     3,055,460    
  700,000     Toshiba Corp     3,593,601    
  104,000     Toyo Suisan Kaisha Ltd     2,646,798    
  110,900     Toyoda Gosei Co Ltd     3,207,831    
  160,600     Toyota Motor Corp     6,847,061    
  120,000     Toyota Tsusho Corp     1,944,433    
  154,000     Trend Micro Inc     6,044,472    
  113,300     Tsumura & Co     4,016,481    
  77,900     Unicharm Corp     6,979,403    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Japan — continued        
  21,797     Yahoo Japan Corp     7,406,222    
  62,490     Yamada Denki Co Ltd     4,248,646    
    Total Japan     559,340,775    
        Netherlands — 1.8%        
  129,861     Crucell NV *      2,839,638    
  129,819     Heineken NV     5,491,400    
  205,876     Koninklijke Ahold NV     2,417,742    
  855,188     Koninklijke KPN NV     13,162,612    
  220,429     Reed Elsevier NV     2,342,011    
  741,688     Unilever NV     20,780,442    
    Total Netherlands     47,033,845    
        Norway — 0.4%        
  125,300     Seadrill Ltd     2,240,891    
  93,450     StatoilHydro ASA     2,043,941    
  201,300     Tandberg ASA     4,185,887    
  33,830     Yara International ASA     923,251    
    Total Norway     9,393,970    
        Portugal — 0.5%        
  310,727     EDP Renovaveis SA *      3,088,646    
  1,005,647     Portugal Telecom SGPS SA     10,427,564    
    Total Portugal     13,516,210    
        Singapore — 0.9%        
  427,000     Keppel Corp Ltd     2,256,269    
  842,000     Keppel Land Ltd     1,495,812    
  617,000     Singapore Exchange Ltd     3,580,726    
  1,606,000     Singapore Press Holdings Ltd     4,077,564    
  2,318,000     Singapore Technologies Engineering Ltd     4,167,764    
  4,015,500     Singapore Telecommunications     8,752,767    
    Total Singapore     24,330,902    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Spain — 4.9%        
  104,385     ACS Actividades de Construccion y Servicios SA     5,389,878    
  1,065,001     Banco Santander SA     16,395,846    
  154,501     Bankinter SA     2,058,961    
  210,287     Iberdrola SA     1,952,483    
  203,199     Inditex SA     11,081,801    
  467,310     Mapfre SA     1,924,531    
  58,585     Red Electrica de Espana     2,752,279    
  3,322,625     Telefonica SA     84,012,527    
    Total Spain     125,568,306    
        Sweden — 4.0%        
  211,979     Alliance Oil Company SDR     2,439,789    
  141,930     Assa Abloy AB Class B     2,280,091    
  649,835     Boliden AB     6,693,439    
  91,891     Elekta AB Class B     1,624,808    
  955,947     Hennes & Mauritz AB Class B     53,078,425    
  223,238     Hexagon AB Class B     2,312,805    
  224,357     Kinnevik Investment AB Class B     3,053,491    
  406,731     Lundin Petroleum AB *      3,737,057    
  54,307     Millicom International Cellular SA SDR *      3,813,350    
  64,416     Modern Times Group AB Class B     2,632,094    
  309,016     Nordea Bank AB     3,241,234    
  80,954     Oriflame Cosmetics SA SDR     3,948,399    
  103,247     Scania AB Class B     1,277,266    
  203,292     Securitas AB Class B     1,986,294    
  174,000     Skandinaviska Enskilda Banken AB Class A *      1,227,102    
  147,704     SKF AB Class B     2,263,128    
  301,334     Swedish Match AB     5,817,400    
  151,377     Tele2 AB Class B     2,108,060    
    Total Sweden     103,534,232    
        Switzerland — 12.1%        
  178,600     Actelion Ltd (Registered) *      10,319,540    
  245,367     Compagnie Financiere Richemont SA Class A     6,697,932    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        Switzerland — continued        
  223,896     Credit Suisse Group AG (Registered)     11,422,947    
  26,545     Geberit AG (Registered)     4,092,757    
  24,790     Kuehne & Nagel International AG (Registered)     1,973,834    
  54,298     Lonza Group AG (Registered)     5,340,938    
  1,827,084     Nestle SA (Registered)     76,067,130    
  70,249     Nobel Biocare Holding AG (Registered)     2,152,024    
  2,148,222     Novartis AG (Registered)     99,791,603    
  338,865     Roche Holding AG (Non Voting)     53,972,968    
  5,392     SGS SA (Registered)     6,680,752    
  48,544     Sonova Holding AG (Registered)     4,652,853    
  19,477     Swatch Group AG     4,210,313    
  11,174     Swisscom AG (Registered)     3,871,939    
  14,381     Syngenta AG (Registered)     3,380,179    
  154,517     Synthes Inc     18,103,445    
    Total Switzerland     312,731,154    
        United Kingdom — 23.4%        
  394,398     3i Group Plc     1,929,871    
  243,081     Admiral Group Plc     4,213,543    
  324,090     Amlin Plc     1,937,005    
  137,201     Anglo American Plc *      4,459,992    
  459,093     Antofagasta Plc     5,671,201    
  871,200     AstraZeneca Plc     40,427,771    
  579,516     Autonomy Corp Plc *      12,222,306    
  763,009     Barclays Plc *      4,670,556    
  533,404     BG Group Plc     8,751,628    
  50,879     BHP Billiton Plc     1,325,298    
  840,269     British American Tobacco Plc     25,531,818    
  578,429     Burberry Group Plc     4,530,331    
  1,165,585     Cable & Wireless Plc     2,801,860    
  310,554     Cadbury Plc     2,915,981    
  1,439,890     Capita Group Plc     15,911,950    
  2,570,529     Centrica Plc     10,505,357    
  1,436,721     Cobham Plc     4,707,423    

 

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, 2009 (Unaudited)

Shares   Description   Value ($)  
        United Kingdom — continued        
  1,834,809     Diageo Plc     28,393,853    
  629,647     Drax Group Plc     4,892,976    
  265,484     Eurasian Natural Resources Corp     3,701,721    
  655,698     Experian Plc     5,487,176    
  6,637,870     GlaxoSmithKline Plc     129,622,935    
  856,060     Group 4 Securicor Plc     3,094,579    
  384,464     ICAP Plc     2,666,133    
  251,223     Imperial Tobacco Group Plc     7,046,378    
  640,789     Inmarsat Plc     5,407,415    
  216,084     Intertek Group Plc     4,233,897    
  223,174     JD Wetherspoon Plc     1,712,214    
  293,764     Kazakhmys Plc     4,662,074    
  345,008     Man Group Plc     1,494,495    
  382,724     Marks & Spencer Group Plc     2,105,336    
  299,331     Micro Focus International Plc     1,836,734    
  230,288     National Grid Plc     2,210,839    
  302,341     Next Plc     8,019,710    
  162,511     Pearson Plc     1,976,838    
  565,177     Petrofac Ltd     8,043,885    
  118,510     Premier Oil Plc *      2,476,684    
  27,199     Randgold Resources Ltd     1,598,477    
  1,340,250     Reckitt Benckiser Group Plc     61,969,784    
  1,304,645     Reed Elsevier Plc     9,437,737    
  61,069     Rio Tinto Plc     2,365,727    
  215,789     Royal Dutch Shell Plc A Shares (London)     5,968,376    
  187,580     Royal Dutch Shell Plc B Shares (London)     5,061,008    
  202,133     SABMiller Plc     4,661,462    
  353,315     Sage Group Plc     1,263,331    
  198,832     Scottish & Southern Energy Plc     3,609,313    
  738,948     Shire Plc     12,227,968    
  492,089     Smith & Nephew Plc     4,166,410    
  182,358     Smiths Group Plc     2,365,756    
  1,318,899     Standard Chartered Plc     29,769,559    
  1,806,853     Standard Life Assurance Plc     5,735,509    

 

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, 2009 (Unaudited)

Shares /
Par Value		   Description   Value ($)  
        United Kingdom — continued        
  1,458,399     Tesco Plc     8,877,618    
  144,062     Thomson Reuters Plc     4,519,796    
  553,239     TUI Travel Plc     2,154,352    
  668,922     Tullow Oil Plc     11,648,810    
  172,411     Unilever Plc     4,711,293    
  155,307     Vedanta Resources Plc     4,485,734    
  5,386,670     Vodafone Group Plc     11,655,805    
  727,386     William Hill Plc     2,181,839    
  415,066     William Morrison Supermarkets Plc     1,860,992    
  1,474,362     Xstrata Plc     19,560,892    
    Total United Kingdom     603,457,311    
    TOTAL COMMON STOCKS (COST $2,522,231,501)     2,491,488,683    
        SHORT-TERM INVESTMENTS — 2.5%        
EUR 43,426     Allied Irish Bank Time Deposit, 0.06%, due 09/01/09     62,255    
CAD 29,717     Bank of America Time Deposit, 0.04%, due 09/01/09     27,145    
USD 97,855     Bank of Ireland Time Deposit, 0.03%, due 09/01/09     97,855    
USD 25,000,000     BNP Paribas Time Deposit, 0.18%, due 09/01/09     25,000,000    
AUD 11,946     Brown Brothers Harriman Time Deposit, 2.17%, due 09/01/09     10,097    
DKK 52,433     Brown Brothers Harriman Time Deposit, 0.30%, due 09/01/09     10,099    
HKD 77,507     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,000    
NOK 60,600     Brown Brothers Harriman Time Deposit, 0.35%, due 09/01/09     10,070    
NZD 1,419     Brown Brothers Harriman Time Deposit, 1.50%, due 09/01/09     974    
SEK 71,744     Brown Brothers Harriman Time Deposit, 0.01%, due 09/01/09     10,079    
CHF 24,558     Deutsche Bank Time Deposit, 0.02%, due 09/01/09     23,192    
JPY 31,311,000     HSBC Bank (Hong Kong) Time Deposit, 0.01%, due 09/01/09     336,497    
SGD 377,265     JPMorgan Chase Time Deposit, 0.01%, due 09/01/09     261,817    
USD 13,700,000     Royal Bank of Canada Time Deposit, 0.15%, due 09/01/09     13,700,000    
USD 25,000,000     Societe Generale Time Deposit, 0.13%, due 09/01/09     25,000,000    
    TOTAL SHORT-TERM INVESTMENTS (COST $64,560,080)     64,560,080    
        TOTAL INVESTMENTS — 99.0%
(Cost $2,586,791,581)		     2,556,048,763    
        Other Assets and Liabilities (net) — 1.0%     24,941,267    
    TOTAL NET ASSETS — 100.0%   $ 2,580,990,030    

 

See accompanying notes to the financial statements.


14


GMO International Growth Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

  A summary of outstanding financial instruments at August 31, 2009 is as follows:

Forward Currency Contracts

Settlement
Date		   Deliver/Receive   Units of Currency   Value   Net Unrealized
Appreciation
(Depreciation)		  
Buys †   
10/23/09   EUR     5,111,185     $ 7,327,559     $ 116,403    
10/23/09   GBP     9,842,251       16,021,401       (724,047 )  
10/23/09   HKD     140,539,860       18,140,531       (7,859 )  
10/23/09   JPY     3,273,687,543       35,194,614       592,512    
10/23/09   JPY     644,835,790       6,932,472       163,963    
10/23/09   JPY     3,273,687,543       35,194,614       627,551    
10/23/09   JPY     3,273,687,543       35,194,614       613,164    
10/23/09   JPY     3,273,687,543       35,194,614       610,680    
10/23/09   NZD     16,225,269       11,098,208       249,798    
10/23/09   SEK     151,069,988       21,226,871       452,813    
10/23/09   SEK     151,069,988       21,226,871       327,365    
10/23/09   SEK     151,069,988       21,226,871       445,838    
10/23/09   SEK     151,069,988       21,226,871       438,549    
    $ 285,206,111     $ 3,906,730    
Sales #   
10/23/09   AUD     32,706,382     $ 27,530,463     $ (642,219 )  
10/23/09   AUD     32,706,382       27,530,462       (782,856 )  
10/23/09   CAD     23,063,804       21,069,473       (183,038 )  
10/23/09   CAD     23,063,804       21,069,473       (242,581 )  
10/23/09   CHF     59,387       56,110       (1,011 )  
10/23/09   CHF     11,617,042       10,976,000       (12,389 )  
10/23/09   EUR     3,512,000       5,034,916       (33,898 )  
10/23/09   EUR     1,796,000       2,574,803       302    
10/23/09   GBP     2,960,000       4,818,344       144,836    
10/23/09   GBP     16,415,030       26,720,694       396,886    
10/23/09   GBP     16,415,030       26,720,694       405,915    
10/23/09   HKD     88,407,686       11,411,441       626    
10/23/09   SEK     88,771,185       12,473,255       (66,728 )  
10/23/09   SGD     22,440,387       15,565,745       (98,150 )  
    $ 213,551,873     $ (1,114,305 )  

 

†  Fund buys foreign currency; sells USD.

#  Fund sells foreign currency; buys USD.

See accompanying notes to the financial statements.


15


GMO International Growth Equity Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Futures Contracts

Number of
Contracts		   Type   Expiration
Date		   Contract
Value		   Net Unrealized
Appreciation
(Depreciation)		  
Buys      
  5,084     OMXS 30   September 2009   $ 64,828,850     $ 2,946,445    
  97     FTSE 100   September 2009     7,711,000       1,228,804    
  220     CAC 40   September 2009     11,556,226       782,771    
                $ 84,096,076     $ 4,958,020    
Sales      
  15     Hang Seng   September 2009   $ 1,899,670     $ 78,337    
  42     TOPIX   September 2009     4,334,175       (187,587 )  
  60     FTSE/MIB   September 2009     9,683,803       (1,326,264 )  
  45     DAX   September 2009     8,834,419       (390,620 )  
  147     S&P Toronto 60   September 2009     17,504,380       (707,562 )  
  2     IBEX 35   September 2009     326,374       (23,113 )  
                $ 42,582,821     $ (2,556,809 )  

 

As of August 31, 2009, 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:

SDR - Swedish Depository Receipt

*  Non-income producing security.

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

USD - United States Dollar

See accompanying notes to the financial statements.


16



GMO International Growth Equity Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments, at value (cost $2,586,791,581) (Note 2)   $ 2,556,048,763    
Foreign currency, at value (cost $602,335) (Note 2)     597,456    
Receivable for investments sold     300,042    
Receivable for Fund shares sold     8,029,447    
Dividends and interest receivable     6,496,722    
Foreign taxes receivable     2,760,662    
Unrealized appreciation on open forward currency contracts (Note 2)     5,587,201    
Receivable for collateral on open futures contracts (Note 2)     13,475,155    
Receivable for expenses reimbursed by Manager (Note 3)     95,573    
Total assets     2,593,391,021    
Liabilities:  
Payable for investments purchased     314,438    
Payable for Fund shares repurchased     6,633,289    
Payable to affiliate for (Note 3):  
Management fee     1,080,586    
Shareholder service fee     227,829    
Trustees and Chief Compliance Officer of GMO Trust fees     4,669    
Payable for variation margin on open futures contracts (Note 2)     822,434    
Unrealized depreciation on open forward currency contracts (Note 2)     2,794,776    
Miscellaneous payable     27,242    
Accrued expenses     495,728    
Total liabilities     12,400,991    
Net assets   $ 2,580,990,030    
Net assets consist of:  
Paid-in capital   $ 3,443,199,033    
Accumulated undistributed net investment income     48,409,161    
Accumulated net realized loss     (885,373,793 )  
Net unrealized depreciation     (25,244,371 )  
    $ 2,580,990,030    
Net assets attributable to:  
Class III shares   $ 654,132,118    
Class IV shares   $ 1,926,857,912    
Shares outstanding:  
Class III     34,176,327    
Class IV     100,595,898    
Net asset value per share:  
Class III   $ 19.14    
Class IV   $ 19.15    

 

See accompanying notes to the financial statements.


17


GMO International Growth Equity Fund

(A Series of GMO Trust)


Statement of Operations — Six Months Ended August 31, 2009 (Unaudited)

Investment Income:  
Dividends (net of withholding taxes of $3,880,892)   $ 42,424,073    
Interest     37,913    
Total investment income     42,461,986    
Expenses:  
Management fee (Note 3)     5,842,426    
Shareholder service fee – Class III (Note 3)     482,627    
Shareholder service fee – Class IV (Note 3)     762,062    
Custodian and fund accounting agent fees     516,048    
Legal fees     43,976    
Audit and tax fees     39,836    
Transfer agent fees     22,908    
Trustees fees and related expenses (Note 3)     22,736    
Registration fees     2,667    
Miscellaneous     28,336    
Total expenses     7,763,622    
Fees and expenses reimbursed by Manager (Note 3)     (643,100 )  
Expense reductions (Note 2)     (448 )  
Net expenses     7,120,074    
Net investment income (loss)     35,341,912    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments     (374,153,497 )  
Closed futures contracts     7,754,690    
Foreign currency, forward contracts and foreign currency related transactions     (20,220,997 )  
Net realized gain (loss)     (386,619,804 )  
Change in net unrealized appreciation (depreciation) on:  
Investments     1,028,912,928    
Open futures contracts     9,067,821    
Foreign currency, forward contracts and foreign currency related transactions     16,842,571    
Net unrealized gain (loss)     1,054,823,320    
Net realized and unrealized gain (loss)     668,203,516    
Net increase (decrease) in net assets resulting from operations   $ 703,545,428    

 

See accompanying notes to the financial statements.


18


GMO International Growth Equity Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 35,341,912     $ 72,934,068    
Net realized gain (loss)     (386,619,804 )     (432,238,819 )  
Change in net unrealized appreciation (depreciation)     1,054,823,320       (1,217,012,018 )  
Net increase (decrease) in net assets from operations     703,545,428       (1,576,316,769 )  
Distributions to shareholders from:  
Net investment income  
Class III     (17,065,286 )     (30,802,113 )  
Class IV     (45,331,930 )     (84,945,522 )  
Total distributions from net investment income     (62,397,216 )     (115,747,635 )  
Net realized gains  
Class III     —       (33,779,254 )  
Class IV     —       (88,650,878 )  
Total distributions from net realized gains     —       (122,430,132 )  
      (62,397,216 )     (238,177,767 )  
Net share transactions (Note 7):  
Class III     (87,247,952 )     40,576,827    
Class IV     42,615,375       223,699,073    
Increase (decrease) in net assets resulting from net share
transactions		     (44,632,577 )     264,275,900    
Total increase (decrease) in net assets     596,515,635       (1,550,218,636 )  
Net assets:  
Beginning of period     1,984,474,395       3,534,693,031    
End of period (including accumulated undistributed net investment
income of $48,409,161 and $75,464,465, respectively)		   $ 2,580,990,030     $ 1,984,474,395    

 

See accompanying notes to the financial statements.


19



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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007   2006   2005  
Net asset value, beginning
of period		   $ 14.46     $ 27.68     $ 31.37     $ 29.90     $ 27.22     $ 23.67    
Income (loss) from investment
operations:		  
Net investment income
(loss)† 		     0.26       0.54       0.69       0.77       0.53       0.40    
Net realized and unrealized
gain (loss)		     4.88       (11.93 )     1.28       4.80       3.57       3.94    
Total from investment
operations		     5.14       (11.39 )     1.97       5.57       4.10       4.34    
Less distributions to shareholders:  
From net investment income     (0.46 )     (0.88 )     (0.40 )     (0.49 )     (0.10 )     (0.33 )  
From net realized gains     —       (0.95 )     (5.26 )     (3.61 )     (1.32 )     (0.46 )  
Total distributions     (0.46 )     (1.83 )     (5.66 )     (4.10 )     (1.42 )     (0.79 )  
Net asset value, end
of period		   $ 19.14     $ 14.46     $ 27.68     $ 31.37     $ 29.90     $ 27.22    
Total Return(a)      35.81 %**      (43.54 )%     5.04 %     19.21 %     15.54 %     18.66 %  
Ratios/Supplemental Data:  
Net assets, end of
period (000's)		   $ 654,132     $ 564,067     $ 1,018,040     $ 950,332     $ 3,119,919     $ 1,653,053    
Net expenses to average
daily net assets		     0.65 %(b)*      0.66 %(c)      0.67 %(c)      0.67 %     0.68 %     0.69 %  
Net investment income to
average daily net assets		     3.04 %*      2.43 %     2.13 %     2.46 %     1.89 %     1.64 %  
Portfolio turnover rate     36 %**      63 %     92 %     74 %     57 %     52 %  
Fees and expenses
reimbursed by the
Manager to average
daily net assets:		     0.06 %*      0.06 %     0.05 %     0.05 %     0.08 %     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.

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

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


20


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, 2009		   Year Ended February 28/29,  
    (Unaudited)   2009   2008   2007(a)   
Net asset value, beginning of period   $ 14.46     $ 27.70     $ 31.38     $ 29.92    
Income (loss) from investment operations:  
Net investment income (loss)†      0.26       0.55       0.73       0.20    
Net realized and unrealized gain (loss)     4.89       (11.95 )     1.26       4.48    
Total from investment operations     5.15       (11.40 )     1.99       4.68    
Less distributions to shareholders:  
From net investment income     (0.46 )     (0.89 )     (0.41 )     (0.50 )  
From net realized gains     —       (0.95 )     (5.26 )     (2.72 )  
Total distributions     (0.46 )     (1.84 )     (5.67 )     (3.22 )  
Net asset value, end of period   $ 19.15     $ 14.46     $ 27.70     $ 31.38    
Total Return(b)      35.89 %**      (43.53 )%     5.11 %     15.79 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 1,926,858     $ 1,420,407     $ 2,516,653     $ 2,864,791    
Net expenses to average daily net assets     0.59 %(c)*      0.60 %(d)      0.61 %(d)      0.61 %*   
Net investment income to average daily net assets     3.02 %*      2.47 %     2.24 %     1.01 %*   
Portfolio turnover rate     36 %**      63 %     92 %     74 %††   
Fees and expenses reimbursed by the Manager
to average daily net assets:		     0.05 %*      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.

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

†  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.


21



GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO International Growth Equity Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a diversified investment company as the term is defined in the 1940 Act. 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 its benchmark, the MSCI EAFE Growth Index. The Fund typically makes equity investments in companies tied economically to countries other than the U.S. Under normal circumstances, the Fund invests at least 80% of its assets in equity investments (which include common stocks and other stock-related securities, such as preferred stocks, convertible securities, and depository receipts). The Fund generally seeks to be fully invested and normally does not take temporary defensive positions through investment in cash and cash equivalents. To the extent the Fund takes temporary defensive positions, it may not achieve its investment objective. In pursuing its investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded and over-the counter derivatives, including options, futures, and swap contracts. The Fund al so may invest in unaffiliated money market funds and in GMO U.S. Treasury Fund.

Throughout the period ended August 31, 2009, the Fund had two classes of shares outstanding: Class III and Class IV. Each class of shares bears a different shareholder service fee.

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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). Unlisted securities for


22


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty. 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 as of the NYSE close using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor using that vendor's proprietary models. As of August 31, 2009, 92.06% of the net assets of the Fund were valued using fair value prices based on models used by a third party vendor and are classified as using Level 2 inputs in the table below.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include fair value adjustments applied to closing prices of foreign securities due to market events that have occurred since the local market close but before the Fund's daily NAV calculation or quoted prices for similar securities.

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


23


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Common Stocks  
Australia   $ 11,367,127     $ 134,690,035     $ —     $ 146,057,162    
Belgium     —       48,801,473       —       48,801,473    
Canada     101,298,892       —       —       101,298,892    
Denmark     —       47,500,375       —       47,500,375    
Finland     —       10,299,889       —       10,299,889    
France     2,716,933       132,628,448       —       135,345,381    
Germany     —       120,232,529       —       120,232,529    
Greece     —       26,628,793       —       26,628,793    
Hong Kong     —       42,224,173       —       42,224,173    
Ireland     —       3,185,392       —       3,185,392    
Italy     —       11,007,919       —       11,007,919    
Japan     —       559,340,775       —       559,340,775    
Netherlands     —       47,033,845       —       47,033,845    
Norway     —       9,393,970       —       9,393,970    
Portugal     —       13,516,210       —       13,516,210    
Singapore     —       24,330,902       —       24,330,902    
Spain     —       125,568,306       —       125,568,306    
Sweden     —       103,534,232       —       103,534,232    
Switzerland     —       312,731,154       —       312,731,154    
United Kingdom     —       603,457,311       —       603,457,311    
TOTAL COMMON STOCKS     115,382,952       2,376,105,731       —       2,491,488,683    
Short-Term Investments     64,560,080       —       —       64,560,080    
Total Investments     179,943,032       2,376,105,731       —       2,556,048,763    
Derivatives  
Forward Currency Contracts     —       5,587,201       —       5,587,201    
Futures Contracts     —       5,036,357       —       5,036,357    
Total   $ 179,943,032     $ 2,386,729,289     $ —     $ 2,566,672,321    

 


24


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Forward Currency Contracts   $ —     $ (2,794,776 )   $ —     $ (2,794,776 )  
Futures Contracts     (707,562 )     (1,927,584 )     —       (2,635,146 )  
Total   $ (707,562 )   $ (4,722,360 )   $ —     $ (5,429,922 )  

 

The Fund held no investments or other financial instruments at either February 28, 2009 or August 31, 2009, 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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. Forward currency contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.


25


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some 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. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Because many foreign exchanges close prior to the close of the New York Stock Exchange ("NYSE"), closing prices for foreign futures on those exchanges do not reflect events that occur after that close but before the close of the NYSE. As a result, the Fund generally values foreign futures using fair value prices, which are based on adjustments to closing prices supplied by a third party vendor based on that vendor's proprietary models. Futures contracts outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss 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 may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options


26


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. The Fund had no open written option contracts during the period.

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a


27


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exposure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disr uptions. The Fund had no swap agreements outstanding at the end of the period.


28


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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 certain 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, 2009 (Unaudited)

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

As of February 28, 2009, 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:

2/28/2017   $ (208,609,786 )  
Total   $ (208,609,786 )  

 

As of February 28, 2009, the Fund elected to defer to March 1, 2009 post-October capital losses of $268,162,473.

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 2,605,538,616     $ 178,747,485     $ (228,237,338 )   $ (49,489,853 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended. The Fund is subject to examination prior to the expiration of 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 in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.


30


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Equity Securities — Equity securities may decline in value due to factors affecting the issuing companies, their industries, or the economy and equity markets generally. Because the Fund generally seeks to be fully invested and normally does not take temporary defensive positions, declines in stock market prices generally are likely to result in declines in the value of the Fund's investments.

• Foreign Investment Risk — The market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities. Foreign markets often are less stable, smaller, less liquid, and less regulated, and the cost of trading in those markets often is higher, than in U.S. markets. The Fund may need to maintain a license to invest in some foreign markets. Changes in investment, capital, or exchange control regulations could adversely affect the value of the Fund's foreign investments.

• Currency Risk — Fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies.

• Market Risk — Growth Securities — Growth securities typically trade at higher multiples of current earnings than other securities. The market prices of growth securities are often more sensitive to market fluctuations because of their heavy dependence on future earnings expectations.

Other principal risks of an investment in the Fund include Derivatives Risk (use of derivatives by the Fund involves risks different from, and potentially greater than, risks associated with direct investments in securities and other investments by the Fund), Credit and Counterparty Risk (risk of default of a


31


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

derivatives counterparty or borrower of the Fund's securities), Smaller Company Risk (greater price fluctuations and liquidity risk resulting from investments in companies with smaller market capitalizations), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the GMO Funds or other underlying funds in which the Fund invests will not perform as expected).

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund may use derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the Fund may use derivatives instead of investing directly in equity securities, including using equity derivatives to maintain equity exposure when it holds cash by "equitizing" its cash balances using futures contracts or other types of derivatives. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of stocks of companies in a particular sector and the Manager believes that stocks of companies in another sector will outperform those stocks, the Fund might use a short futures contract on an appropriate index (to synthetically "sell" a portion of the Fund's portfolio) in combination with a long futures contract on another index (to synthetically "buy" exposure to that index). The Fund also may use currency derivatives in an attempt to


32


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterpart ies may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.


33


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (rights and
warrants)		   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized appreciation on
futures contracts* 		     —       —       —       5,036,357       —       5,036,357    
Unrealized appreciation on
forward currency contracts		     —       5,587,201       —       —       —       5,587,201    
Unrealized appreciation on
swap agreements		     —       —       —       —       —       —    
Total   $ —     $ 5,587,201     $ —     $ 5,036,357     $ —     $ 10,623,558    

 


34


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Liabilities:  
Written options outstanding   $ —     $ —     $ —     $ —     $ —     $ —    
Unrealized depreciation on
futures contracts* 		     —       —       —       (2,635,146 )     —       (2,635,146 )  
Unrealized depreciation on
forward currency contracts		     —       (2,794,776 )     —       —       —       (2,794,776 )  
Unrealized depreciation on
swap agreements		     —       —       —       —       —       —    
Total   $ —     $ (2,794,776 )   $ —     $ (2,635,146 )   $ —     $ (5,429,922 )  

 

^   As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*   The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (rights and warrants)   $ —     $ —     $ —     $ (4,937,950 )   $ —     $ (4,937,950 )  
Futures contracts     —       —       —       7,754,690       —       7,754,690    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       (22,942,371 )     —       —       —       (22,942,371 )  
Total   $ —     $ (22,942,371 )   $ —     $ 2,816,740     $ —     $ (20,125,631 )  

 


35


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (rights and warrants)   $ —     $ —     $ —     $ —     $ —     $ —    
Futures contracts     —       —       —       9,067,821       —       9,067,821    
Swap contracts     —       —       —       —       —       —    
Written options     —       —       —       —       —       —    
Forward currency contracts     —       16,462,580       —       —       —       16,462,580    
Total   $ —     $ 16,462,580     $ —     $ 9,067,821     $ —     $ 25,530,401    

 

^   As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Forwards   Futures  
Average notional amount outstanding   $ 805,835,309     $ 101,350,516    
Highest notional amount outstanding     1,149,412,086       128,444,726    
Lowest notional amount outstanding     498,757,984       53,041,352    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee is paid monthly at an 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 0.09% for Class IV shares.

The Manager has contractually agreed to reimburse the Fund for expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.50% of the Fund's average daily net assets. Excluded Fund Fees and Expenses include shareholder service fees, expenses indirectly incurred by investment in other series of the Trust, fees and expenses of the independent Trustees of the Trust, fees and expenses for legal services not approved by the Manager for the Trust, compensation and expenses of the Trust's Chief Compliance Officer ("CCO") (excluding any employee benefits), brokerage commissions, securities


36


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.50% of the Fu nd's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.50% of the Fund's average daily net assets.

The Fund's portion of the fee paid by the Trust to the Trust's independent Trustees and CCO during the period ended August 31, 2009 was $18,136 and $10,580, respectively. The compensation and expenses of the CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration 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, 2009 aggregated $794,657,844 and $822,976,209, 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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 45.12% 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. Three of the shareholders are other funds of the Trust.

As of August 31, 2009, less than 0.01% of the Fund's shares were held by senior management of the Manager and GMO Trust officers and 96.13% of the Fund's shares were held by accounts for which the Manager had investment discretion.


37


GMO International Growth Equity Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.   Share transactions

The Declaration of Trust permits each Fund 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, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class III:   Shares   Amount   Shares   Amount  
Shares sold     2,356,103     $ 39,172,666       11,893,535     $ 239,774,534    
Shares issued to shareholders
in reinvestment of distributions		     749,780       13,121,157       2,513,470       58,342,144    
Shares repurchased     (7,945,540 )     (139,541,775 )     (12,169,228 )     (257,539,851 )  
Net increase (decrease)     (4,839,657 )   $ (87,247,952 )     2,237,777     $ 40,576,827    
    Six Months Ended
August 31, 2009
(Unaudited)		   Year Ended
February 28, 2009		  
Class IV:   Shares   Amount   Shares   Amount  
Shares sold     27,434,838     $ 425,667,078       46,074,272     $ 942,225,145    
Shares issued to shareholders
in reinvestment of distributions		     2,588,917       45,331,930       7,579,903       172,936,531    
Shares repurchased     (27,640,762 )     (428,383,633 )     (46,297,143 )     (891,462,603 )  
Net increase (decrease)     2,382,993     $ 42,615,375       7,357,032     $ 223,699,073    

 

8.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


38



GMO International Growth Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the renewal of the investment management agreement of the Fund for an additional twelve month period commencing June 30, 2009, 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, 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 28, 2009 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 their 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 at or prior to a meeting of the Trustees on June 15, 2009.

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, paying particular attention to the possible effects of a decline in the Manager's revenue on such resources. 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, 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. The


39


GMO International Growth Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

Trustees also considered that the Fund's shareholder base was predominantly of an institutional nature. In evaluating the Fund's advisory fee arrangements and other compensation paid to the Manager, 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 fees paid to the Manager 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 distribu tion services) it provided to the Fund and the Trust, including the effect of recent market events and changes in assets under management and revenues on such profits. In considering that information, the Trustees took into account so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the Trust's servicing agreements and possible reputational value derived from serving as investment manager to the Fund. The Trustees considered the ability of the funds of the Trust to establish a public record of their performance also to be a potential fallout benefit to the Manager because of the opportunity that record might create for the Manager to increase assets under management by, for example, attracting new clients, 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 of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, 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. Finally, the Trustees also considere d the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

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,


40


GMO International Growth Equity Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (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 15, 2009, 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, 2009.


41


GMO International Growth Equity Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2009.

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, 2009 through August 31, 2009.

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     0.65 %   $ 1,000.00     $ 1,358.10     $ 3.86    
2) Hypothetical     0.65 %   $ 1,000.00     $ 1,021.93     $ 3.31    
Class IV  
1) Actual     0.59 %   $ 1,000.00     $ 1,358.90     $ 3.51    
2) Hypothetical     0.59 %   $ 1,000.00     $ 1,022.23     $ 3.01    

 

*  Expenses are calculated using each Class's annualized net expense ratio for the six months ended August 31, 2009, 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 Asset Allocation Bond Fund

(A Series of GMO Trust)

Semiannual Report

August 31, 2009


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

(A Series of GMO Trust)
Investments Concentration Summary
August 31, 2009 (Unaudited)

Asset Class Summary*   % of Total Net Assets  
Debt Obligations     106.4 %  
Short-Term Investments     2.1    
Swaps     0.4    
Options Purchased     0.2    
Written Options     (0.1 )  
Reverse Repurchase Agreements     (9.1 )  
Other     0.1    
      100.0 %  

 

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


1



GMO Asset Allocation Bond Fund

(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Par Value ($) /
Shares /
Contracts/Principal
Amount		   Description   Value ($)  
        DEBT OBLIGATIONS — 106.4%  
        U.S. Government — 106.4%  
    114,165,472     U.S. Treasury Inflation Indexed Bond, 0.88%, due 04/15/10 (a) (b) (c)      113,987,146    
    31,879,500     U.S. Treasury Inflation Indexed Note, 2.00%, due 04/15/12 (a)      32,606,735    
    285,712,900     U.S. Treasury Inflation Indexed Note, 1.63%, due 01/15/15 (a)      285,266,616    
    4,345,760     U.S. Treasury Inflation Indexed Note, 2.00%, due 01/15/16 (a)      4,423,167    
    241,120,385     U.S. Treasury Inflation Indexed Bond, 2.38%, due 01/15/17 (a)      251,744,631    
    37,160,950     U.S. Treasury Inflation Indexed Bond, 2.13%, due 01/15/19 (a)      38,287,373    
    60,000,000     U.S. Treasury Principal Strip Bond, due 11/15/21 (b)      35,923,860    
    50,000,000     U.S. Treasury Strip Coupon, due 08/15/22 (b)      28,689,350    
    Total U.S. Government     790,928,878    
    TOTAL DEBT OBLIGATIONS (COST $796,099,574)     790,928,878    
        MUTUAL FUNDS — 1.9%  
        Affiliated Issuers — 1.9%  
    560,036     GMO U.S. Treasury Fund     14,006,504    
    TOTAL MUTUAL FUNDS (COST $14,011,463)     14,006,504    
        OPTIONS PURCHASED — 0.2%  
        Options on Futures — 0.0%  
USD     3,000     Euro Dollar Future Option Put, Expires 12/14/09, Strike 98.00     56,250    
USD     3,000     Euro Dollar Future Option Put, Expires 12/14/09, Strike 99.00     243,750    
    Total Options on Futures     300,000    
        Options on Interest Rate Swaps — 0.2%  
USD     300,000,000     USD Swaption Call, Expires 09/10/09, Strike 1.15%     1,479,300    
    Total Options on Interest Rate Swaps     1,479,300    
    TOTAL OPTIONS PURCHASED (COST $1,452,000)     1,779,300    

 

See accompanying notes to the financial statements.


2


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2009 (Unaudited)

Shares   Description   Value ($)  
        SHORT-TERM INVESTMENTS — 0.3%        
        Money Market Funds — 0.3%        
    1,974,434     State Street Institutional U.S. Government Money Market
Fund-Institutional Class		     1,974,434    
    TOTAL SHORT-TERM INVESTMENTS (COST $1,974,434)     1,974,434    
        TOTAL INVESTMENTS — 108.8%
(Cost $813,537,471)		     808,689,116    
        Other Assets and Liabilities (net) — (8.8%)     (65,371,071 )  
    TOTAL NET ASSETS — 100.0%   $ 743,318,045    

 

See accompanying notes to the financial statements.


3


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

A summary of outstanding financial instruments at August 31, 2009 is as follows:

Reverse Repurchase Agreements

Face Value   Description   Market Value  
USD 11,450,000     Goldman Sachs, 0.25%, dated 08/14/09, to be repurchased on
demand at face value plus accrued interest.		   $ (11,451,431 )  
USD 23,100,000     Barclays Bank PLC, 0.40%, dated 08/19/09, to be repurchased
on demand at face value plus accrued interest.		     (23,100,257 )  
USD 5,599,750     Goldman Sachs, 0.24%, dated 08/27/09, to be repurchased on
demand at face value plus accrued interest.		     (5,599,788 )  
USD 27,750,000     Barclays Bank PLC, 0.40%, dated 08/19/09, to be repurchased
on demand at face value plus accrued interest.		     (27,750,308 )  
    $ (67,901,784 )  

 

Average balance outstanding   $ (47,357,306 )  
Average interest rate     0.43 %  
Maximum balance outstanding   $ (67,899,750 )  
Average shares outstanding     21,642,628    
Average balance per share outstanding   $ (2.19 )  
Days outstanding     132    

 

Average balance outstanding was calculated based on daily balances outstanding during the period that the Fund has entered into reverse repurchase agreements.

Swap Agreements

Interest Rate Swaps

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)#		   Fixed
Rate		   Variable Rate   Market
Value		  
  36,400,000     USD   5/26/2014   Barclays Bank PLC   (Pay)     2.59 %   3 month LIBOR   $ 137,348    
  36,400,000     USD   5/29/2014   Citigroup   (Pay)     2.80 %   3 month LIBOR     (213,839 )  
  79,000,000     USD   6/9/2014   Citigroup   (Pay)     3.30 %   3 month LIBOR     (2,212,579 )  
  23,800,000     USD   5/26/2019   JP Morgan Chase Bank   Receive     3.45 %   3 month LIBOR     (263,924 )  

 

See accompanying notes to the financial statements.


4


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Interest Rate Swaps — continued

Notional
Amount		   Expiration
Date		   Counterparty   Receive
(Pay)#		   Fixed
Rate		   Variable Rate   Market
Value		  
  20,000,000     USD   5/26/2019   Barclays Bank PLC   Receive     3.46 %   3 month LIBOR   $ (211,305 )  
  23,800,000     USD   5/29/2019   Morgan Stanley   Receive     3.73 %   3 month LIBOR     288,806    
  20,000,000     USD   5/29/2019   Citigroup   Receive     3.74 %   3 month LIBOR     251,086    
  44,000,000     USD   6/9/2019   Citigroup   Receive     4.22 %   3 month LIBOR     2,313,568    
  50,000,000     USD   6/9/2019   Goldman Sachs   Receive     4.20 %   3 month LIBOR     2,565,993    
  40,000,000     USD   11/15/2021   JP Morgan Chase Bank   (Pay)     0.00 %   3 month LIBOR     1,536,804    
  20,000,000     USD   11/15/2021   JP Morgan Chase Bank   (Pay)     0.00 %   3 month LIBOR     446,446    
  50,000,000     USD   8/15/2022   Barclays Bank PLC   (Pay)     0.00 %   3 month LIBOR     451,755    
  11,400,000     USD   5/26/2039   JP Morgan Chase Bank   (Pay)     3.95 %   3 month LIBOR     253,887    
  11,400,000     USD   5/29/2039   Morgan Stanley   (Pay)     4.21 %   3 month LIBOR     (256,717 )  
  25,000,000     USD   6/9/2039   Goldman Sachs   (Pay)     4.52 %   3 month LIBOR     (1,911,694 )  
    $ 3,175,635    
    Accretion since inception for zero coupon interest rate swaps   $ 605,542    

 

#  Receive - Fund receives fixed rate and pays variable rate.
(Pay) - Fund pays fixed rate and receives variable rate.

Written Options

A summary of open written option contracts for the Fund at August 31, 2009 is as follows:

    Notional
Amount/
Contracts		   Expiration
Date		       Description   Premiums   Market
Value		  
Call     300,000,000     9/10/2009   USD   Interest Rate Swaption,    
 
                Strike 0.90%   $ (120,000 )   $ (735,300 )  
Put     6,000     12/14/2009   USD   Euro Dollar Future Option Put,
Strike 98.50		    
(813,000)		      
(225,000)		    
    $ (933,000 )   $ (960,300 )  

 

As of August 31, 2009, for the swap contracts held, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.

See accompanying notes to the financial statements.


5


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Schedule of Investments — (Continued)
August 31, 2009 (Unaudited)

Notes to Schedule of Investments:

LIBOR - London Interbank Offered Rate

TIPS - Treasury Inflation Protected Securities

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

(b)  All or a portion of this security has been pledged to cover collateral requirements on reverse repurchase agreements (Note 2).

(c)  All or a portion of this security has been pledged to cover collateral requirements on purchased options (Note 2).

Currency Abbreviations:

USD - United States Dollar

See accompanying notes to the financial statements.


6



GMO Asset Allocation Bond Fund

(A Series of GMO Trust)


Statement of Assets and Liabilities — August 31, 2009 (Unaudited)

Assets:  
Investments in unaffiliated issuers, at value (cost $799,526,008) (Note 2)   $ 794,682,612    
Investments in affiliated issuers, at value (cost $14,011,463) (Notes 2 and 8)     14,006,504    
Receivable for investments sold     11,000,000    
Dividends and interest receivable     2,088,433    
Interest receivable for open swap contracts     251,688    
Receivable for open swap contracts (Note 2)     8,245,693    
Receivable for expenses reimbursed by Manager (Note 3)     10,075    
Total assets     830,285,005    
Liabilities:  
Payable for Fund shares repurchased     12,836,665    
Payable to affiliate for (Note 3):  
Management fee     155,308    
Shareholder service fee     38,217    
Trustees and Chief Compliance Officer of GMO Trust fees     309    
Payable for open swap contracts (Note 2)     5,070,058    
Payable for reverse repurchase agreements (Note 2)     67,901,784    
Written options outstanding, at value (premiums $933,000) (Note 2)     960,300    
Accrued expenses     4,319    
Total liabilities     86,966,960    
Net assets   $ 743,318,045    
Net assets consist of:  
Paid-in capital   $ 729,784,872    
Accumulated undistributed net investment income     13,648,104    
Accumulated net realized gain     979,547    
Net unrealized depreciation     (1,094,478 )  
    $ 743,318,045    
Net assets attributable to:  
Class III shares   $ 35,376,991    
Class VI shares   $ 707,941,054    
Shares outstanding:  
Class III     1,378,443    
Class VI     27,574,163    
Net asset value per share:  
Class III   $ 25.66    
Class VI   $ 25.67    

 

See accompanying notes to the financial statements.


7


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Statement of Operations — Period from March 18, 2009
(commencement of operations) through August 31, 2009 (Unaudited)

Investment Income:  
Interest   $ 14,363,037    
Dividends from affiliated issuers (Note 8)     13,410    
Dividends     933    
Total investment income     14,377,380    
Expenses:  
Management fee (Note 3)     519,374    
Shareholder service fee – Class III (Note 3)     32,810    
Shareholder service fee – Class VI (Note 3)     102,232    
Interest expense (Note 2)     72,801    
Audit and tax fees     30,154    
Custodian, fund accounting agent and transfer agent fees     10,518    
Legal fees     5,412    
Registration fees     1,804    
Trustees fees and related expenses (Note 3)     1,773    
Miscellaneous     1,894    
Total expenses     778,772    
Fees and expenses reimbursed by Manager (Note 3)     (49,066 )  
Expense reductions (Note 2)     (430 )  
Net expenses     729,276    
Net investment income (loss)     13,648,104    
Realized and unrealized gain (loss):  
Net realized gain (loss) on:  
Investments in unaffiliated issuers     (6,122,716 )  
Investments in affiliated issuers     (6,948 )  
Closed futures contracts     3,288,999    
Closed swap contracts     (1,545,283 )  
Written options     5,365,495    
Net realized gain (loss)     979,547    
Change in net unrealized appreciation (depreciation) on:  
Investments in unaffiliated issuers     (4,843,396 )  
Investments in affiliated issuers     (4,959 )  
Open swap contracts     3,781,177    
Written options     (27,300 )  
Net unrealized gain (loss)     (1,094,478 )  
Net realized and unrealized gain (loss)     (114,931 )  
Net increase (decrease) in net assets resulting from operations   $ 13,533,173    

 

See accompanying notes to the financial statements.


8


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)


Statement of Changes in Net Assets

    Period from
March 18, 2009
(commencement of operations)
through August 31, 2009
(Unaudited)		  
Increase (decrease) in net assets:  
Operations:  
Net investment income (loss)   $ 13,648,104    
Net realized gain (loss)     979,547    
Change in net unrealized appreciation (depreciation)     (1,094,478 )  
Net increase (decrease) in net assets from operations     13,533,173    
Net share transactions (Note 7):  
Class III     34,296,439    
Class VI     695,488,433    
Increase (decrease) in net assets resulting from net share transactions     729,784,872    
Total increase (decrease) in net assets     743,318,045    
Net assets:  
Beginning of period     —    
End of period (including accumulated undistributed net investment
income of $13,648,104)		   $ 743,318,045    

 

See accompanying notes to the financial statements.


9



GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

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

    Period from
March 27, 2009
(commencement of
operations) through
August 31, 2009
(Unaudited)		  
Net asset value, beginning of period   $ 25.15    
Income (loss) from investment operations:  
Net investment income (loss)†      0.64    
Net realized and unrealized gain (loss)     (0.13 )  
Total from investment operations     0.51    
Net asset value, end of period   $ 25.66    
Total Return(a)      2.03 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 35,377    
Net operating expenses to average daily net assets     0.40 %(b)   
Interest expense to average daily net assets(c)      0.03 %*   
Total net expenses to average daily net assets     0.43 %(b)*   
Net investment income to average daily net assets     5.91 %*   
Portfolio turnover rate     80 %††**   
Fees and expenses reimbursed by the Manager to average daily net assets:     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.

(c)  Interest expense incurred as a result of entering into reverse repurchase agreements is included in the Fund's net expenses. Income earned on investing proceeds from reverse repurchase agreements is included in interest income.

†  Calculated using average shares outstanding throughout the period.

††  Calculation represents portfolio turnover of the Fund for the period from March 18, 2009 (commencement of operations) through August 31, 2009.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


10


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

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

    Period from
March 18, 2009
(commencement of
operations) through
August 31, 2009
(Unaudited)		  
Net asset value, beginning of period   $ 25.00    
Income (loss) from investment operations:  
Net investment income (loss)†      0.76    
Net realized and unrealized gain (loss)     (0.09 )  
Total from investment operations     0.67    
Net asset value, end of period   $ 25.67    
Total Return(a)      2.68 %**   
Ratios/Supplemental Data:  
Net assets, end of period (000's)   $ 707,941    
Net operating expenses to average daily net assets     0.31 %(b)   
Interest expense to average daily net assets(c)      0.03 %*   
Total net expenses to average daily net assets     0.34 %(b)*   
Net investment income to average daily net assets     6.65 %*   
Portfolio turnover rate     80 %**   
Fees and expenses reimbursed by the Manager to average daily net assets:     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.

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

(c)  Interest expense incurred as a result of entering into reverse repurchase agreements is included in the Fund's net expenses. Income earned on investing proceeds from reverse repurchase agreements is included in interest income.

†  Calculated using average shares outstanding throughout the period.

*  Annualized.

**  Not annualized.

See accompanying notes to the financial statements.


11



GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements
August 31, 2009 (Unaudited)

1.  Organization

GMO Asset Allocation Bond Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management investment company with multiple series. The Fund is a non-diversified investment company as the term is defined in the 1940 Act. 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 Citigroup 3 Month Treasury Bill Index. The Fund may invest in bonds of any kind. Under normal circumstances, the Fund invests (including through investment in other series of the Trust) at least 80% of its assets in bonds. For these purposes, the term "bonds" includes (i) obligations of an issuer to make payments of principal and/or interest on future dates and (ii) synthetic debt instruments created by the Manager by using a futures contract, swap contract, currency forward or option. The Fund may invest in any sector of the bond market and is not required to maintain a minimum or maximum allocation of investments in any one sector. The sectors and types of bonds that the Fund may invest in include, but are not limited to: investment grade bonds denominated in various currencies, including 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), corporate bonds, taxable and tax-exempt municipal bonds, and Rule 144A securities; below investment grade bonds (also known as "junk bonds"); 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; sovereign debt of emerging countries and other bonds issued in emerging countries (including below investment grade bonds (also known as "junk bonds")); and asset-backed securities, including mortgage related and mortgage-backed securities. The Fund may also invest in futures contracts, currency options, currency forwards, swap contracts (including credit default swaps), interest rate options, swaps on interest rates, and other types of derivatives. The Fund may gain exposure to the investments described above through investments in shares of other series of the Trust, including GMO U.S. Treasury Fund. The Fund may invest up to 100% of its assets in below investment grade bonds (also known as "junk bonds"). The Fund may also hold securities that are downgraded to below investment grade status after the time of purchase by the Fund. The Fund may also invest in unaffiliated money market funds.

As of August 31, 2009, the Fund had two classes of shares outstanding: Class III and Class VI. Each class of shares bears a different shareholder service fee.


12


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 (i) the last sale price or (ii) official closing price on each business day or, (iii) if there is no such reported sale or official closing price, at the most recent quoted bid price or broker bid (if the Manager deems the private market to be more relevant in determining market value than an exchange). 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. Shares of investment funds are generally valued at their net asset value. Securities (including derivatives) 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 a cting at their direction pursuant to procedures approved by the Trustees. Although the goal of fair valuation is to determine the amount the owner of the securities might reasonably expect to receive upon their current sale, because of the uncertainty inherent in fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. During the six months ended August 31, 2009, the Fund did not reduce the values of any OTC derivatives on account of the credit worthiness of a counterparty.

The Fund has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels are defined as follows:

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

Level 2 – Valuations determined using other significant direct or indirect observable inputs. These inputs may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves and similar data.

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


13


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the inputs used as of August 31, 2009 in valuing the Fund's investments:

ASSET VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Debt Obligations  
U.S. Government   $ —     $ 790,928,878     $ —     $ 790,928,878    
TOTAL DEBT OBLIGATIONS     —       790,928,878       —       790,928,878    
Mutual Funds     14,006,504       —       —       14,006,504    
Options Purchased     300,000       1,479,300       —       1,779,300    
Short-Term Investments     —       1,974,434       —       1,974,434    
Total Investments     14,306,504       794,382,612       —       808,689,116    
Derivatives  
Swap Agreements     —       8,245,693       —       8,245,693    
Total   $ 14,306,504     $ 802,628,305     $ —     $ 816,934,809    

 

LIABILITY VALUATION INPUTS

Description   Quoted Prices
in Active
Markets for
Identical Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Total  
Derivatives  
Swap Agreements   $ —     $ (5,070,058 )   $ —     $ (5,070,058 )  
Written Options     (225,000 )     (735,300 )     —       (960,300 )  
Total   $ (225,000 )   $ (5,805,338 )   $ —     $ (6,030,358 )  

 

Underlying funds are classified above as Level 1. For the summary of valuation inputs (including Level 3 inputs, if any) of the underlying fund, please refer to the portfolio valuation note in its financial statements.

The Fund held no investments or other financial instruments at either March 18, 2009 (commencement of operations) or August 31, 2009, whose fair value was determined using Level 3 inputs.


14


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (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 4 p.m. New York time exchange rates each business day. Income and expenses denominated in foreign currencies are translated at the 4 p.m. New York time exchange rates on the business day the income and expenses are accrued or incurred. The Fund does not isolate realized and unrealized gains and losses that result from changes in exchange rates from realized and unrealized gains and losses that result from changes in the market value of investments. Both of those changes are included in 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 (or to pay or receive the amounts of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund's forward currency contracts is marked to market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are 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. These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the 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. Most forward currency contracts are not collateralized. The Fund had no forward currency contracts outstanding at the end of the period.

Futures contracts

The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. Some futures contracts are net (cash) settled. 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. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund's futures contracts is 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 settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some circumstances, futures exchanges may establish daily limits on the


15


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

amount that the price of a futures contract can vary from the previous day's settlement price, thereby effectively preventing liquidation of unfavorable positions. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. The Fund had no futures contracts outstanding at the end of the period.

Options

The Fund may purchase put and call options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset 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 reflected in the marked-to-market value of the option. The potential loss associated with purchasing put and call options is limited to the premium paid. Options contracts purchased by the Fund and outstanding at the end of the period are listed in the Fund's Schedule of Investments.

The Fund may write (i.e., sell) call and put options. Writing options alters the Fund's exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g. index options), settlement will be in cash. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., c all options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. Over-the- counter options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market.

When an option contract is closed, the Fund records a realized gain or loss 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. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations. Written options outstanding at the end of the period are listed in the Fund's Schedule of Investments.


16


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

For the period ended August 31, 2009, investment activity in options contracts written by the Fund was as follows:

    Puts   Calls  
    Principal
Amount
of Contracts		   Number
of Contracts		   Premiums   Principal
Amount
of Contracts		   Number
of Contracts		   Premiums  
Outstanding,
beginning
of period		   $ —       —     $ —     $ —       —     $ —    
Options written     (25,000,000 )     (10,000 )     (1,976,000 )     (400,000,000 )     (9,600 )     (6,752,729 )  
Options bought back     —       —       —       10,000,000       5,280       3,063,190    
Options expired     25,000,000       4,000       1,163,000       90,000,000       4,320       3,569,539    
Outstanding,
end of period		   $ —       (6,000 )   $ (813,000 )   $ (300,000,000 )     —     $ (120,000 )  

 

The Fund values exchange traded options at the last sale price or, if no sale is reported, the last bid price for options it has purchased and the last ask price for options it has written. The Fund values over-the-counter options using inputs provided by primary pricing sources and industry models.

Swap agreements

The Fund may enter into various types of swap agreements, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap agreement is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap agreement, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.

Interest rate swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive interest, e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal.

Total return swap agreements involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security or basket of securities), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.

In a credit default swap agreement, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g. , default or similar event) occurs with


17


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

respect to a reference entity or entities. A seller of credit default protection receives payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations. Buying credit default protection reduces the buyer's exposure (or increases negative exposure) to a reference entity or entities in the event that a credit event relating to that entity or entities occurs (e.g., it is intended to reduce risk when a party owns a security issued by or otherwise has exposure to the reference entity). Selling credit default protection increases the seller's exposure to the reference entity should a credit event relating to the reference entity occur. If no credit event occurs, the seller has no payment obligations.

For credit default swap agreements on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer's failure to pay interest or principal, a breach of a material representation or covenant, an agreement by the holders of an asset-backed security to a maturity extension, or a write-down on the collateral underlying the security. For credit default swap agreements on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer's bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.

Variance swap agreements involve an agreement by two parties to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a "fixed rate" or strike price payment for the "floating rate" or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As a result, no money changes hands at the initiation of the contract. At the expiration date, the amount payable by one party to the other is the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. A receiver of the realized price variance would be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to mak e a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to receive a payment when that variance is less than the strike price. This type of agreement is essentially a forward contract on the future realized price variance of the underlying asset.

The Fund prices its swap agreements daily using models that may incorporate quotations from market makers and records the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap agreements or reset dates, as appropriate.

Swap agreements generally are not traded on financial markets. The values assigned to them may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap agreements involves counterparty credit, legal, and documentation risk that is generally not reflected in the models used to price the swap agreement. Such risks include the possibility that the party with whom the Fund contracts defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that the


18


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions. Swap agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Reverse repurchase agreements

The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement 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. The Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which can cause the Fund's portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the Fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer's bankruptcy or insolvency, the Fund's use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the Fund's right to repurchase the securities. As of August 31, 2009, the Fund had entered into reverse repurchase agreements, plus accrued interest, amounting to $67,901,784, selling securities with a market value, plus accrued interest, of $70,016,892. Reverse repurchase agreements outstanding at the end of the period are listed in the Fund's Schedule of Investments.

Rights and warrants

The Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in Options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. Warrants and rights often are less liquid. In addition, the terms of warrants or rights may limit a Fund's ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. The Fund held no rights or warrants 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 carryforwards 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


19


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. Distributions to shareholders are recorded by the Fund on the ex-dividend date.

Income 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.

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

As of August 31, 2009, the approximate cost for U.S. federal income tax purposes and gross and net unrealized appreciation (depreciation) in value of investments were as follows:

Aggregate Cost   Gross Unrealized
Appreciation		   Gross Unrealized
(Depreciation)		   Net Unrealized
Appreciation
(Depreciation)		  
$ 814,364,484     $ 1,089,300     $ (6,764,668 )   $ (5,675,368 )  

 

The Fund is subject to the provisions of Financial Accounting Standards Board ("FASB") 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, 2009, nor did it have any increases or decreases in unrecognized tax benefits or liabilities for the period then ended.

Security transactions and related investment income

Security transactions are accounted for on the trade date in the financial statements and usually one business day following the trade date in the daily net asset value calculations. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. 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 investment loss. Coupon 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 uses the identified cost basis for purposes of determining the cost basis.


20


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

Expenses

Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the funds based on, 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 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 incurs fees and expenses indirectly as a shareholder in the underlying fund (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. The Fund receives the benefit of the earnings allowance. Expense reimbursements are reported as a reduction of expenses in the Statement of Operations.

Investment risks

The value of the Fund's shares changes with the value of the Fund's investments. Many factors can affect this value and an investor may lose money by investing in the Fund. Following is a brief summary of the principal risks of an investment in the Fund. Many of these risks are more pronounced as a result of current global economic conditions that began to unfold in 2008. This summary is not intended to include every potential risk of investing in the Fund. The Fund could be subject to additional risks because the types of investments it makes may change over time.

• Market Risk — Fixed Income Securities — Typically, the value of the Fund's fixed income securities will decline during periods of rising interest rates and widening of credit spreads. Recent changes in credit markets increased credit spreads and there can be no assurance that those spreads will tighten or not increase further.

• Credit and Counterparty Risk — This is the risk that the issuer or guarantor of a fixed income security, the counterparty to an OTC derivatives contract, a borrower of the Fund's securities or the obligor of an obligation underlying an asset-backed security, will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise honor its obligations. This risk may be particularly pronounced for the Fund because it may invest up to 100% of its assets in below investment grade bonds ("junk bonds"). Junk bonds have speculative characteristics, and changes in economic conditions or other circumstances are more likely to lead to an issuer's weakened capacity to make principal and interest payments than is the case with investment grade bonds. A dditionally, to the extent that the Fund uses OTC derivatives, including swap contracts with longer-term maturities, and/or has significant exposure to a single counterparty, this risk will be particularly pronounced for the Fund. The risk of counterparty default is particularly acute in economic environments where financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.


21


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

• Derivatives Risk — The use of derivatives involves risks different from, and potentially greater than, risks associated with direct investments in securities and other assets. Derivatives may increase other Fund risks, including market risk, liquidity risk, and credit and counterparty risk, and their value may or may not correlate with the value of the relevant underlying asset.

Other principal risks of an investment in the Fund include Foreign Investment Risk (risk that the market prices of foreign securities may fluctuate more rapidly and to a greater extent than those of U.S. securities, which may adversely affect the value of the Fund's foreign investments, with the Fund's investments in emerging countries subject to this risk to a greater extent), Currency Risk (risk that fluctuations in exchange rates may adversely affect the value of the Fund's foreign currency holdings and investments denominated in foreign currencies), Liqui dity Risk (difficulty in selling Fund investments), Leveraging Risk (increased risks from use of reverse repurchase agreements and other derivatives and securities lending), Focused Investment Risk (increased risk from the Fund's focus on investments in countries, regions, or sectors with high positive correlations to one another), Management Risk (risk that the Manager's strategies and techniques will fail to produce the desired results), Market Disruption and Geopolitical Risk (risk that geopolitical events may increase market volatility and have adverse long-term effects on U.S. and world economies and markets generally), Large Shareholder Risk (risk that shareholders of the Fund, such as institutional investors or other series of the Trust, will disrupt the Fund's operations by purchasing or redeeming Fund shares in large amounts and/or on a frequent basis), and Fund of Funds Risk (risk that the underlying funds in which the Fund invests will not perform as expected). The Fund is a non-diversified investment company under the 1940 Act, and therefore a decline in the market value of a particular security held by the Fund may affect the Fund's performance more than if the Fund were diversified. For more information about reverse repurchase agreement and other derivatives, please refer to the descriptions of financial instruments (e.g. reverse repurchase agreements, swaps, futures, and other types of derivative contracts) in Note 2 above as well as the discussion of the Fund's use of derivatives below.

Disclosures about Derivative Instruments and Hedging Activities — Effective March 1, 2009, the Fund adopted FASB Statement of Financial Standards No. 161 "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is an amendment to FASB Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments" which expands the disclosure requirements of FASB 133 regarding an entity's derivative instruments and hedging activities.

The Fund uses derivatives, which are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the investment exposures of the Fund's portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and indices, and include swaps, reverse repurchase agreements and other over-the-counter ("OTC") contracts.

The Fund uses derivatives as a substitute for direct investment in securities or other assets. In particular, the Fund may use swaps (including credit default swaps) or other derivatives on an index, a single security


22


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

or a basket of securities to gain investment exposures. The Fund also may use currency derivatives (including currency forwards, futures contracts, swap contracts and options) to gain exposure to a given currency.

The Fund may use derivatives in an attempt to hedge or reduce its investment exposures. For example, the Fund may use credit default swaps to take an active short position with respect to the likelihood of default by an issuer. The Fund also may use currency derivatives in an attempt to hedge or reduce some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that the Manager believes is highly correlated with the relevant currency.

The Fund may use derivatives in an attempt to adjust elements of its investment exposures to various securities, sectors, markets and currencies without actually having to sell existing investments or make new direct investments. For instance, the Manager may attempt to alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund's exposure to the credit of an issuer through the debt instrument but adjust the Fund's interest rate exposure through the swap. With these swaps, the Fund and its counterparties exchange interest rate exposure, such as fixed vs. variable and shorter duration vs. longer duration. The Fund also may use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio investments.

The use of derivatives involves risks different from, and potentially greater than, the risks associated with investing directly in securities and other more traditional assets. In particular, the use of OTC derivatives contracts exposes the Fund to the risk that the counterparty will be unable or unwilling to make timely settlement payments or otherwise to honor its obligations. OTC derivative contracts typically can be closed out only with the other party to the contract. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the Fund will be able to enforce its contractual rights. For example, because the contract for each OTC derivative is individually negotiated with a specific counterparty, a Fund is subject to the risk that a counterparty may interpret contractual terms (e.g., the definition of default) differently than the Fund. If that occurs, the cost and unpredictabil ity of the legal proceedings required for the Fund to enforce its contractual rights may lead it to decide not to pursue its claims against the counterparty. The Fund, therefore, assumes the risk that it may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts or that those payments may be delayed or made only after the Fund has incurred the costs of litigation.

Sometimes, the Fund may post or receive collateral related to changes in the market value of a derivative. A further risk of using OTC derivatives arises when the counterparty's obligations are not secured by collateral, the Fund's security interest in any collateral is not perfected, the Fund is required to make a significant upfront deposit, or when the collateral is not regularly marked-to-market. Even when obligations are required by contract to be collateralized, there is usually a lag between the day the collateral is called for and the day the Fund receives the collateral. When a counterparty's obligations are


23


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

not fully secured by collateral, the Fund is exposed to the risk of having limited recourse if the counterparty defaults. Due to the nature of the Fund's investments, the Fund may invest in derivatives with a limited number of counterparties and events that affect the creditworthiness of any one of those counterparties may have a pronounced effect on the Fund.

Derivatives risk is particularly acute in economic environments in which the Fund's counterparties and other financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Derivatives also are subject to a number of risks described in the "Investment Risks" note, including market risk, liquidity risk, currency risk, and credit and counterparty risk. The terms of many derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling and judgment, which increases the risk of mispricing or improper valuation. There can be no assurance that the pricing models employed by the Fund's third-party valuation services and/or the Manager will produce valuations that are reflective of levels at which the OTC derivatives purchased by the Fund may actually be closed out or sold. This valuation risk is more pronounced in case s where the Fund enters OTC derivatives with specialized terms because the value of those derivatives in some cases can be determined only by reference to similar derivatives with more standardized terms. Improper valuations may result in increased cash payments to counterparties, undercollateralization and/or errors in the calculation of a Fund's net asset value.

There can be no assurance that a Fund's use of derivatives will be effective or will have the desired results. Suitable derivatives are not available in all circumstances. For example, the economic costs of taking some derivatives positions may be prohibitive and, if a counterparty or its affiliate is deemed to be an affiliate of a Fund, none of the Funds will be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund's risk exposures.

Derivatives also involve the risk that changes in their value may not correlate perfectly with the assets, rates or indices they are designed to hedge or closely track. The use of derivatives also may increase the taxes payable by shareholders.

The Fund's use of derivatives may cause its portfolio to be implicitly leveraged. Leverage increases a Fund's portfolio losses when the value of its investment positions declines. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate, or index may result in a loss substantially greater than the initial value of the derivative.


24


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair Values of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2009.

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Assets:  
Investments, at value (purchased
options)		   $ 1,779,300     $ —     $ —     $ —     $ —     $ 1,779,300    
Unrealized appreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized appreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized appreciation on swap
agreements		     8,245,693       —       —       —       —       8,245,693    
Total   $ 10,024,993     $ —     $ —     $ —     $ —     $ 10,024,993    
Liabilities:  
Written options outstanding   $ (960,300 )   $ —     $ —     $ —     $ —     $ (960,300 )  
Unrealized depreciation on
futures contracts* 		     —       —       —       —       —       —    
Unrealized depreciation on forward
currency contracts		     —       —       —       —       —       —    
Unrealized depreciation on swap
agreements		     (5,070,058 )     —       —       —       —       (5,070,058 )  
Total   $ (6,030,358 )   $ —     $ —     $ —     $ —     $ (6,030,358 )  

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

*  The Fair Values of Derivative Instruments table includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Period end variation margin is reported within the Statement of Assets and Liabilities.


25


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended August 31, 2009:

    Derivatives not accounted for as hedging instruments under Statement 133^   
    Interest rate
contracts		   Foreign exchange
contracts		   Credit
contracts		   Equity
contracts		   Other
contracts		   Total  
Net Realized Gain (Loss) on:  
Investments (purchased options)   $ (5,895,573 )   $ —     $ —     $ —     $ —     $ (5,895,573 )  
Futures contracts     3,288,999       —       —       —       —       3,288,999    
Swap contracts     (1,545,283 )     —       —       —       —       (1,545,283 )  
Written options     5,365,495       —       —       —       —       5,365,495    
Forward currency contracts     —       —       —       —       —       —    
Total   $ 1,213,638     $ —     $ —     $ —     $ —     $ 1,213,638    
Change in Unrealized Appreciation
(Depreciation) on:		  
Investments (purchased options)   $ 327,300     $ —     $ —     $ —     $ —     $ 327,300    
Futures contracts     —       —       —       —       —       —    
Swap contracts     3,781,177       —       —       —       —       3,781,177    
Written options     (27,300 )     —       —       —       —       (27,300 )  
Forward currency contracts     —       —       —       —       —       —    
Total   $ 4,081,177     $ —     $ —     $ —     $ —     $ 4,081,177    

 

^  As the Fund values its derivatives at fair value and recognizes changes in fair value through the statement of operations, it does not qualify for hedge accounting under FASB 133. The Fund's investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables.

Volume of derivative activity, based on absolute values of month-end notional amounts outstanding during the period, was as follows for the six months ended August 31, 2009:

    Futures   Swaps   Options  
Average notional amount outstanding   $ 155,973,958     $ 407,216,667     $ 386,050,000    
Highest notional amount outstanding     689,675,000       514,200,000       800,000,000    
Lowest notional amount outstanding     —       102,500,000       400,000    

 

3.  Fees and other transactions with affiliates

GMO receives a management fee for the services it provides to the Fund. That fee 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


26


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

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 expenses incurred by the Fund through at least June 30, 2010 to the extent the Fund's total annual operating expenses (excluding "Excluded Fund Fees and Expenses", as defined below) exceed 0.25% of the Fund's average daily net assets. Excluded Fund Fees and 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 (including an exchange-traded fund) 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). In addition, the Manager has contractually agreed to reimburse the Fund through at least June 30, 2010 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 GMO U.S. Treasury Fund (excluding U.S. Treasury Fund's Excluded Fund Fees and Expenses) exceeds 0.25% of the Fund's average daily net assets, subject to a maximum total reimbursement to the Fund equal to 0.25% of the Fund's average daily net assets.

The Fund incurs fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2009, 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 CCO during the period ended August 31, 2009 was $1,331 and $718, respectively. The compensation and expenses of the


27


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

CCO are included in miscellaneous expenses in the Statement of Operations. The Fund paid no remuneration to any other officer of the Trust.

4.  Purchases and sales of securities

For the period ended August 31, 2009, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:

    Purchases   Sales  
U.S. Government securities   $ 993,748,454     $ 208,178,977    
Investments (non-U.S. Government securities)     191,729,606       170,363,623    

 

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 involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund's indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.

6.  Principal shareholders and related parties

As of August 31, 2009, 77.53% of the shares outstanding 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.

As of August 31, 2009, 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.


28


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

7.  Share transactions

The Declaration of Trust permits each Fund to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:

    Period from March 27, 2009
(commencement of operations)
through August 31, 2009
(Unaudited)		  
Class III:   Shares   Amount  
Shares sold     4,073,711     $ 102,534,290    
Shares issued to shareholders
in reinvestment of distributions		     —       —    
Shares repurchased     (2,695,268 )     (68,237,851 )  
Net increase (decrease)     1,378,443     $ 34,296,439    
    Period from March 18, 2009
(commencement of operations)
through August 31, 2009
(Unaudited)		  
Class VI:   Shares   Amount  
Shares sold     29,068,670     $ 733,252,518    
Shares issued to shareholders
in reinvestment of distributions		     —       —    
Shares repurchased     (1,494,507 )     (37,764,085 )  
Net increase (decrease)     27,574,163     $ 695,488,433    

 

8.  Investments in affiliated issuers

A summary of the Fund's transactions in the shares of other funds of the Trust during the period ended August 31, 2009 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. Treasury Fund   $ —     $ 182,273,410     $ 168,255,000     $ 13,410     $ —     $ 14,006,504    
Totals   $ —     $ 182,273,410     $ 168,255,000     $ 13,410     $ —     $ 14,006,504    

 


29


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Notes to Financial Statements — (Continued)
August 31, 2009 (Unaudited)

9.  Subsequent events

In connection with the preparation of the Fund's financial statements for the period ended August 31, 2009, events and transactions subsequent to August 31, 2009 through October 30, 2009 (the date the Fund's financial statements were issued) have been evaluated by the Manager for possible disclosure. The Manager has not identified any subsequent events requiring financial statement disclosure as of October 30, 2009.


30



GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement
August 31, 2009 (Unaudited)

In determining to approve the initial investment management agreement of the Fund, the Trustees, each of whom is not an "interested person" of GMO Trust (the "Trust"), considered information that they believed, in light of the legal advice furnished to them, to be relevant. At a meeting on December 4, 2008, the Trustees discussed materials provided by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager") to the Trustees for purposes of their considering the Manager's proposal to establish the Fund as a new series of the Trust and the proposed new investment management agreement between the Trust, on behalf of the Fund, and the Manager. During the meeting, the Trustees met with a member of the Manager's Asset Allocation Division, the investment division that would be responsible for overall management and strategic direction of the Fund, and members of the Manager's Fixed Income Division, the investment division that would b e responsible for day-to-day management of the Fund. As discussed below, at meetings throughout the year, the Trustees also considered other information relevant to approval of the Fund's investment management agreement.

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

Since the Fund had not yet commenced operations, the Trustees were unable to consider its performance. However, the Trustees considered that the Fund's purpose is to serve as an investment vehicle for the Trust's asset allocation funds and GMO asset allocation separate account clients rather than as a stand-alone fund, the qualifications and experience of the personnel responsible for managing those funds, the support those personnel received from the Manager, the investment techniques used to manage those funds, and the overall competence of the Manager.

The Trustees gave substantial consideration to the fees to be paid under the Fund's investment management agreement. 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 proposed advisory fee arrangement, the Trustees took into account the sophistication of the investment techniques to be used to manage the Fund. Since the Fund had not yet commenced operations, the Trustees were unable to review the Manager's profitability with respect to the Fund. The Trustees did, however, consider how the proposed fees compared to fees paid by other funds of GMO Trust and so-called "fallout benefits" to the Manager, such as the receipt of shareholder servicing fees pursuant to the


31


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Board Review of Investment Management Agreement — (Continued)
August 31, 2009 (Unaudited)

Trust's servicing agreements and possible reputational value to be derived from serving as investment manager to the Fund. As the Fund had not yet commenced operations, the Trustees did not consider possible economies of scale to the Manager associated with managing the Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the agreement, that the advisory fee to be charged to the Fund was reasonable.

The Trustees also considered other information regarding the quality of the services to be provided by the Manager to the Fund. The Trustees evaluated the Manager's record with respect to regulatory compliance and compliance with the investment policies of other funds of the Trust. The Trustees also considered the procedures of the Manager designed to fulfill the Manager's fiduciary duty to the Fund with respect to possible conflicts of interest, including the Manager's code of ethics (regulating the personal trading of its officers and employees), the procedures by which the Manager allocates trades among its investment advisory clients, the systems in place to ensure compliance with the foregoing, and the record of the Manager in these matters. The Trustees also took into account information concerning the Manager's practices and results with respect to the execution of portfolio transactions that they received over the course of the year. Finally, the Trustees also considered the Manager's practices and record with respect to the resolution of trading, net asset value determination, and other similar errors.

The Trustees considered the scope of the services to be provided by the Manager to the Fund under the investment management agreement and shareholder service agreement. The Trustees noted that 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 would be consistent with the Fund's operational requirements, including, in addition to seeking to achieve the Fund's investment objective, compliance with the Fund's investment restrictions, tax and reporting requirements, and shareholder services. The Trustees considered the Manager's oversight of non-advisory services to be provided by persons other than the Manager, considering, among other things, the Fund's estimated total expenses, the Manager's proposed contractual expense reimbu rsement arrangement with respect to the Fund, and the reputation of the Fund's other service providers.

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

Following their review, on December 4, 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 Fund's initial investment management agreement for an initial period ending on the second anniversary of the agreement's execution.


32


GMO Asset Allocation Bond Fund

(A Series of GMO Trust)

Fund Expenses
August 31, 2009 (Unaudited)

Expense Examples: the following information is in relation to the expenses for the period ended August 31, 2009.

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

These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, as outlined in the notes to the table below.

Actual Expenses

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

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of 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     0.43 %   $ 1,000.00     $ 1,020.30     $ 1.87 (a)   
2) Hypothetical     0.43 %   $ 1,000.00     $ 1,023.04     $ 2.19 (b)   
Class VI  
1) Actual     0.34 %   $ 1,000.00     $ 1,026.80     $ 1.57 (c)   
2) Hypothetical     0.34 %   $ 1,000.00     $ 1,023.49     $ 1.73 (b)   

 

(a)  For the period March 27, 2009 (commencement of operations) through August 31, 2009. Expense is calculated using the Class's annualized net expense ratio (including interest expense and indirect expenses incurred) for the period ended August 31, 2009, multiplied by the average account value over the period, multiplied by 157 days in the period, divided by 365 days in the year.

(b)  For the period March 1, 2009 through August 31, 2009. Expense is calculated using the Class's annualized net expense ratio (including interest expense and indirect expenses incurred) for the period ended August 31, 2009, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year.

(c)  For the period March 18, 2009 (commencement of operations) through August 31, 2009. Expense is calculated using the Class's annualized net expense ratio (including interest expense and indirect expenses incurred) for the period ended August 31, 2009, multiplied by the average account value over the period, multiplied by 166 days in the period, divided by 365 days in the year.


33



 

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) 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) 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 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 are attached hereto as EX-99.906CERT.

 


 

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/ J.B. Kittredge

 

 

J.B. Kittredge, Chief Executive Officer

 

 

 

 

 

Date:

November 4, 2009

 

 

 

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/ J.B. Kittredge

 

 

J.B. Kittredge, Principal Executive Officer

 

 

 

 

 

Date:

November 4, 2009

 

 

 

By (Signature and Title):

/s/ Sheppard N. Burnett

 

 

Sheppard N. Burnett, Principal Financial Officer

 

 

 

 

 

Date:

November 4, 2009

 

 

 EX-99.CERT 2 a09-26584_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, J.B. Kittredge, 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 4, 2009

 

 

 

 

 

/s/ J.B. Kittredge

 

J.B. Kittredge, Principal Executive Officer

 


 

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, 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 4, 2009

 

 

 

 

 

/s/ Sheppard N. Burnett

 

Sheppard N. Burnett, Principal Financial Officer

 

 EX-99.906CERT 3 a09-26584_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

 

J.B. Kittredge, 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, 2009 (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/ J.B. Kittredge

 

 

J.B. Kittredge

 

 

Principal Executive Officer

 

 

 

 

 

Date:

November 4, 2009

 

 

 

 

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.

 


 

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

 

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, 2009 (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 4, 2009

 

 

 

 

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the “Commission”) or its staff upon request.

 

This certification is being furnished to the Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.

 

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