<Page>
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OMB APPROVAL
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OMB Number: 3235-0570
Expires: November 30, 2005
Estimated average burden
hours per response....... 5.0
-----------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04347
---------------------------------------------
GMO Trust
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
40 Rowes Wharf, Boston, MA 02110
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Scott Eston, Chief Executive Officer
40 Rowes Wharf, Boston, MA 02110
- -------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-330-7500
----------------------------
Date of fiscal year end: 11/30/2003
--------------------------
Date of reporting period: 12/1/03 - 05/31/03
-------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
GMO Alpha LIBOR Fund (the "Fund") has filed a registration statement pursuant
to Section 8(b) of the Investment Company Act of 1940. The Fund has not filed
a registration statement that has gone effective under the Securities Act of
1933 (the "1933 Act") because beneficial interests in the registrant are
issued and sold solely in transactions that do not involve any public offering
within the meaning of Section 4(2) of the 1933 Act. Accordingly, this report
is not filed under Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934.
ITEM 1 (REPORT TO SHAREHOLDERS):
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
MAY 31, 2003
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
MAY 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 86.6%
ASSET-BACKED SECURITIES -- 63.6%
AIRLINES -- 3.0%
9,400,000 Aircraft Finance Trust Series 99-1A Class A1,
Variable Rate, 1 mo. LIBOR + .48%, 1.79%, due
05/15/24 7,332,000
-------------
AUTOMOTIVE -- 4.9%
5,000,000 Aesop Funding II LLC Series 03-2A Class A1, 2.74%,
due 06/20/07 4,999,946
3,500,000 Capital Auto Receivables Asset Trust 2002-2
Class A3, 3.82%, due 07/15/05 3,580,391
3,500,000 Ford Credit Auto Owner Trust Series 03-A
Class A4A, 2.70%, due 06/15/07 3,548,125
-------------
12,128,462
-------------
CREDIT CARDS -- 15.3%
5,000,000 American Express Credit Account Master Trust
Series 01-6 2003-1 Class A, Variable Rate, 1 mo.
LIBOR + .11%, 1.42%, due 09/15/10 5,002,500
4,000,000 Bank One Issuance Trust Series 02-A5 Class A5,
Variable Rate, 1 mo. LIBOR + .12%, 1.43%,
due 06/15/10 4,000,000
5,000,000 Bank One Issuance Trust Series 03-A1 Class A1,
Variable Rate, 1 mo. LIBOR + .12%, 1.46%,
due 09/15/10 5,000,000
5,000,000 Chase Credit Card Master Trust Series 01-6
Class A,
Variable Rate, 1 mo. LIBOR + .13%, 1.44%,
due 03/16/09 5,006,800
4,600,000 Discover Card Master Trust I Series 00-5 Class A,
Variable Rate, 1 mo. LIBOR + .18%, 1.49%,
due 11/15/07 4,611,141
5,000,000 Discover Card Master Trust I Series 2003-2
Class A,
Variable Rate, 1 mo. LIBOR + .13%, 1.44%,
due 08/15/10 4,997,656
5,000,000 MBNA Master Credit Card Trust 03-A3 Class A3,
Variable Rate, 1 mo. LIBOR + .12%, 1.43%,
due 08/16/10 5,000,000
4,000,000 Providian Gateway Master Trust Series 00-C
Class A, 144A,
Variable Rate, 1 mo. LIBOR + .22%, 1.53%,
due 03/15/07 3,995,200
-------------
37,613,297
-------------
EMERGING MARKETS COLLATERALIZED DEBT OBLIGATIONS -- 5.3%
5,632,823 Anfield Road I Ltd Series 1 Class A,
Variable Rate, 6 mo. LIBOR + .25%, 1.59%,
due 11/06/06 5,477,920
1,153,623 Augusta Funding Ltd Series 97-B Class A, MBIA,
Variable Rate, 6 mo. LIBOR + .19%, 1.46%,
due 04/10/10 1,133,434
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
MAY 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
EMERGING MARKETS COLLATERALIZED DEBT OBLIGATIONS -- CONTINUED
2,185,720 Oasis CBO Ltd, 144A,
Variable Rate, 6 mo. LIBOR + .38%, 1.85%,
due 05/30/11 2,041,463
4,628,696 Starvest Emerging Markets CBO-I Series 1A,
Class A,
Variable Rate, 6 mo. LIBOR + .19%, 1.53%,
due 07/30/11 4,508,905
-------------
13,161,722
-------------
HEALTH CARE EQUIPMENT RECEIVABLES -- 0.0%
139,640 DVI Business Credit Receivables Corp III Series
98-1A Class A, Variable Rate, 1 mo. LIBOR +
.35%, 1.66%, due 01/15/04(a) 125,676
-------------
HIGH YIELD COLLATERALIZED DEBT OBLIGATIONS -- 11.4%
5,584,615 Great Point CBO Ltd Series 98-1A Class A1, 144A,
Variable Rate, 6 mo. LIBOR + .30%, 1.56%,
due 10/15/10 5,381,168
2,000,000 Nomura CBO Ltd Series 97-2 Class A2, 144A, Step
Up, 6.26%, due 10/30/09 1,985,300
5,638,859 Northstar CBO Ltd. Series 97-2 Class A2, 144A,
Variable Rate, Step Up, 6.62%, due 07/15/09 4,736,641
1,066,912 Pacific Life CBO Series 98-1A Class A2A, 144A,
Step Up, 6.56%, due 02/15/10 1,067,637
6,700,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2,
144A, 6.33%, due 09/15/09 6,891,017
10,223,895 SHYPPCO Finance Company Series 1I Class A-2B,
6.64%, due 06/15/10 7,974,638
-------------
28,036,401
-------------
HOME EQUITY -- 7.6%
2,000,000 CIT Group Home Equity Loan Trust 2003-1 Class A3,
2.79%, due 03/20/29 2,024,453
4,500,000 Medallion Trust 2003-1G Class A, Step up, 1.48%,
due 12/21/33 4,500,000
2,314,597 Residential Funding Mortgage Securities 2 2003-HS1
Class AII,
Variable Rate, 1 mo. LIBOR+.29%, 1.61%,
due 01/25/33 2,315,523
GBP 3,000,000 RMAC 2003-NS1A Class A2A,
Variable Rate, 3 mo. GBP LIBOR + .45%, 4.10%,
due 06/12/35 4,915,050
5,000,000 Wachovia Asset Securitization, Inc. 2003-HE1
Class A1,
Variable Rate, 1 mo. LIBOR + .29%, 1.61%,
due 03/25/33 5,000,000
-------------
18,755,026
-------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
MAY 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
INSURANCE -- 3.5%
5,000,000 Meridian Funding Co LLC, MBIA, 144A,
Variable Rate, 1 mo. LIBOR + .38%, 1.69%,
due 06/22/11 4,985,000
3,000,000 PFS Financing Corp Series 01-FA Class A, MBIA,
144A,
Variable Rate, 1 mo. LIBOR + .33%, 1.64%,
due 06/15/08 2,988,750
666,666 Polaris Funding Company, Series EMTN,
Variable Rate, 1 mo. LIBOR + .45%, 1.76%,
due 01/07/05 665,833
-------------
8,639,583
-------------
INSURED HIGH YIELD COLLATERALIZED DEBT OBLIGATIONS -- 2.2%
1,737,649 DLJ CBO Ltd Series 1A Class A2 144A, 6.68%,
due 04/15/11 1,737,649
3,646,804 Northstar CBO Ltd. Series 97-2I Class A2, 144A,
Variable Rate, Step Up, 4.12%, due 07/15/09 3,642,391
-------------
5,380,040
-------------
PERPETUAL LOANS COLLATERALIZED DEBT OBLIGATIONS -- 2.8%
7,000,000 Augusta Funding Ltd Series 10A Class F-1 144A,
Variable Rate, 3 mo. LIBOR + .25%, 2.05%,
due 06/30/17 6,790,000
-------------
RATE REDUCTION BONDS -- 2.2%
5,000,000 California Infrastructure PG&E Series 97-1
Class A7, 6.42%, due 09/25/08 5,423,438
-------------
STUDENT LOANS -- 5.4%
561,029 Banc One Student Loan Trust Series 94-A Class A2,
Variable Rate, 1 mo. LIBOR + .30%, 1.62%,
due 10/25/16 561,773
2,400,000 Keycorp Student Loan Trust Series 94-B
Certificates,
Variable Rate, 1 mo. LIBOR + .73%, 2.05%,
due 11/25/21 2,399,280
2,000,000 Keycorp Student Loan Trust Series 95-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 2.07%,
due 10/27/21 2,000,000
1,193,200 SMS Student Loan Trust Series 94-A Certificates,
Variable Rate, 1 mo. LIBOR + .70%, 2.02%,
due 07/26/21 1,196,183
1,051,400 SMS Student Loan Trust Series 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75%, 2.07%,
due 10/25/23 1,053,293
986,400 SMS Student Loan Trust Series 95-A Certificates,
Variable Rate, 1 mo. LIBOR + .65%, 1.97%,
due 04/25/25 987,584
3,358,619 SMS Student Loan Trust Series 97-A Class A,
Variable Rate, 3 mo. U.S. Treasury Bill + .60%,
1.69%, due 10/27/25 3,353,917
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
MAY 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
STUDENT LOANS -- CONTINUED
1,001,600 Society Student Loan Trust Series 93-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 2.10%,
due 07/25/03 1,001,670
752,185 Student Loan Marketing Association Series 96-4
Class A2,
Variable Rate, 3 mo. U.S. Treasury Bill + .64%,
1.68%, due 07/25/09 748,424
-------------
13,302,124
-------------
TOTAL ASSET-BACKED SECURITIES 156,687,769
-------------
CORPORATE DEBT -- 2.7%
2,613,152 Continental Airlines Series 99-1A, 6.55%, due
02/02/19 2,377,969
4,000,000 General Motors Acceptance Corp, 7.50%, due
07/15/05 4,294,640
-------------
6,672,609
-------------
U.S. GOVERNMENT -- 20.3%
28,493,250 U.S. Treasury Inflation Indexed Note, 3.63%, due
01/15/08(b) 31,934,702
18,000,000 U.S. Treasury Note, 2.00%, due 11/30/04(c) 18,205,313
-------------
50,140,015
-------------
TOTAL DEBT OBLIGATIONS (COST $216,729,677) 213,500,393
-------------
<Caption>
SHARES
--------------
PRIVATE INVESTMENT FUND -- 7.2%
1,097,573 GMO SPV I, LLC*(a)(d) 17,583,122
-------------
TOTAL PRIVATE INVESTMENT FUND (COST $109,377,903) 17,583,122
-------------
<Caption>
PRINCIPAL
AMOUNT
--------------
CALL OPTIONS PURCHASED -- 0.6%
OPTIONS ON BONDS -- 0.6%
25,000,000 Bellsouth Telecommunications, 7.00%, 12/01/95,
Expires 10/26/06, Strike 100.00 1,459,892
-------------
TOTAL CALL OPTIONS PURCHASED (COST $312,500) 1,459,892
-------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
MAY 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.2%
CASH EQUIVALENTS -- 4.2%
10,414,879 Merrimac Cash Fund 10,414,879
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $10,414,879) 10,414,879
-------------
TOTAL INVESTMENTS -- 98.6%
(Cost $336,834,959) 242,958,286
Other Assets and Liabilities (net) -- 1.4% 3,500,981
-------------
TOTAL NET ASSETS -- 100.0% $ 246,459,267
=============
</Table>
<Table>
NOTES TO THE 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.
CBO - Collateralized Bond Obligation
EMTN - Euromarket Medium Term Note
MBIA - Insured as to the payment of principal and interest by
MBIA Insurance Corp
Variable and step up rates - The rates shown on variable and
step up rate notes are the current interest rates at May 31,
2003, which are subject to change based on the terms of the
security, including varying reset dates.
CURRENCY ABBREVIATIONS:
</Table>
<Table>
GBP - British Pound
</Table>
* Non-income producing security.
(a) Security valued at fair value using methods determined in good faith by
or at the direction of the Trustees (Note 1).
(b) All or a portion of this security is held as collateral for open swap
contracts (Note 7).
See accompanying notes to the financial statements. 5
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
MAY 31, 2003 (UNAUDITED)
(c) All or a portion of this security has been segregated to cover margin
requirements on financial future contracts (Note 7).
(d) GMO Alpha LIBOR Fund held 83.2% of GMO SPV I, LLC at May 31, 2003. GMO
SPV I, LLC is comprised of the following underlying assets:
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
----------------------------------------------------------------------------------------
22,000,000 NPF XII, Inc. Series 00-3 Class A, 144A, 2.20%,
due 12/01/03 3,520,000
60,000,000 NPF XII, Inc. Series 02-1A Class A, 144A, 2.39%,
due 05/02/05 9,600,000
49,500,000 NPF VI, Inc. Series 02-1A Class A, 144A, 2.39%,
due 02/01/08 7,920,000
------------
21,040,000
------------
Other Assets and Liabilities 100,201
------------
21,140,201
------------
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $336,834,959) (Note 1) $242,958,286
Receivable for investments sold 27,340,715
Interest receivable 1,478,872
Receivable for variation margin on open futures contracts
(Notes 1 and 7) 12,498
Net receivable for open swap contracts (Notes 1 and 7) 281,742
Receivable for expenses reimbursed by Manager (Note 3) 11,501
------------
Total assets 272,083,614
------------
LIABILITIES:
Payable for investments purchased 25,375,000
Payable for open forward foreign currency contracts
(Notes 1 and 7) 216,386
Accrued expenses 32,961
------------
Total liabilities 25,624,347
------------
NET ASSETS $246,459,267
============
NET ASSETS CONSIST OF:
Paid-in capital $404,596,486
Accumulated undistributed net investment income 3,953,516
Accumulated net realized loss (68,174,392)
Net unrealized depreciation (93,916,343)
------------
$246,459,267
============
SHARES OUTSTANDING 10,268,680
============
NET ASSET VALUE PER SHARE $ 24.00
============
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest $4,597,306
----------
Total income 4,597,306
----------
EXPENSES:
Legal fees 127,725
Trustees fees and related expenses (Note 3) 62,434
Audit fees 33,325
Custodian and transfer agent fees 17,266
Miscellaneous 1,840
Fees reimbursed by Manager (Note 3) (147,347)
----------
95,243
----------
Net expenses 95,243
----------
Net investment income 4,502,063
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (38,931,055)
Closed futures contracts (1,373,350)
Closed swap contracts 82,771
Foreign currency, forward contracts and foreign
currency related transactions 174,091
----------
Net realized loss (40,047,543)
----------
Change in net unrealized appreciation (depreciation) on:
Investments 38,369,230
Open futures contracts (105,026)
Open swap contracts 281,742
Foreign currency, forward contracts and foreign
currency related transactions (330,013)
----------
Net unrealized gain 38,215,933
----------
Net realized and unrealized loss (1,831,610)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,670,453
==========
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR THE PERIOD
SIX MONTHS ENDED MARCH 1, 2002
MAY 31, 2003 THROUGH YEAR ENDED
(UNAUDITED) NOVEMBER 30, 2002* FEBRUARY 28, 2002
---------------- --------------------- ------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 4,502,063 $ 35,057,752 $ 67,631,921
Net realized gain (loss) (40,047,543) (9,458,422) 10,857,842
Change in net unrealized appreciation
(depreciation) 38,215,933 (120,340,832) (26,022,121)
------------ --------------- --------------
Net increase (decrease) in net assets from
operations 2,670,453 (94,741,502) 52,467,642
------------ --------------- --------------
Distributions to shareholders from:
Net investment income -- (8,124,881) (76,537,894)
Net realized gains -- (4,222,800) --
------------ --------------- --------------
-- (12,347,681) (76,537,894)
------------ --------------- --------------
Fund share transactions: (Note 6)
Proceeds from sale of shares -- 464,399,000 866,500,000
Net asset value of shares issued to
shareholders in payment of distributions
declared -- 12,347,681 76,537,894
Cost of shares repurchased (37,926,315) (1,528,653,659) (998,429,701)
------------ --------------- --------------
Net decrease in net assets resulting from Fund
share transactions (37,926,315) (1,051,906,978) (55,391,807)
------------ --------------- --------------
Total decrease in net assets (35,255,862) (1,158,996,161) (79,462,059)
NET ASSETS:
Beginning of period 281,715,129 1,440,711,290 1,520,173,349
------------ --------------- --------------
End of period (including undistributed net
investment income of $3,953,516, distributions
in excess of net investment income of
$548,547, undistributed net investment income
of $7,373,868, respectively) $246,459,267 $ 281,715,129 $1,440,711,290
============ =============== ==============
</Table>
* The Fund changed its fiscal year end from February 28 to November 30.
See accompanying notes to the financial statements. 9
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS PERIOD FROM
ENDED MARCH 1, 2002
MAY 31, THROUGH YEAR ENDED FEBRUARY 28/29,
2003 NOVEMBER 30, -------------------------------------------------
(UNAUDITED) 2002* 2002 2001(C) 2000***
------------ ---------------- ------------- ------------- -------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 23.77 $ 25.66 $ 26.14 $ 25.29 $ 25.00
-------- -------- ---------- ---------- --------
Income from investment operations:
Net investment income 0.40++ 0.65++ 1.23++ 1.83++ 0.26
Net realized and unrealized gain
(loss) (0.17) (2.31) (0.27) 0.07 0.03
-------- -------- ---------- ---------- --------
Total from investment operations 0.23 (1.66) 0.96 1.90 0.29
-------- -------- ---------- ---------- --------
Less distributions to shareholders:
From net investment income -- (0.15) (1.44) (1.05) --
From net realized gains -- (0.08) -- -- --
-------- -------- ---------- ---------- --------
Total distributions -- (0.23) (1.44) (1.05) --
-------- -------- ---------- ---------- --------
NET ASSET VALUE, END OF PERIOD $ 24.00 $ 23.77 $ 25.66 $ 26.14 $ 25.29
======== ======== ========== ========== ========
TOTAL RETURN(a) 0.97%+ (6.53)%+ 3.69% 7.61% 1.16%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $246,459 $281,715 $1,440,711 $1,520,173 $338,101
Net operating expenses to average
daily net assets 0.07%** 0.01%** --(d) --(d) --(d)
Interest expense to average daily net
assets -- 0.03%**(b) 0.05%(b) 0.20%(b) 0.40%**(b)
Total net expenses to average daily
net assets 0.07%** 0.04%** 0.05% 0.20% 0.40%**
Net investment income to average
daily net assets 3.38%** 3.35%** 4.67% 7.05% 6.77%**
Portfolio turnover rate 64% 39% 29% 39% 4%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.11%** 0.02%** 0.02% 0.02% 0.02%**
</Table>
(a) The total return would have been lower had certain expenses not been
reimbursed during the period shown.
(b) 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.
(c) Effective March 1, 2000, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and discount on debt securities. The effect of this change on
net investment income and net realized and unrealized gains and losses
per share for the year ended February 28, 2001 was less than $0.01 per
share. The effect of this change decreased the ratio of net investment
income to average net assets from 7.06% to 7.05%. Per share and
ratios/supplemental data for periods prior to March 1, 2000 have not
been restated to reflect this change.
(d) Net operating expenses as a percentage of average daily net assets was
less than 0.01%.
* The Fund changed its fiscal year end from February 28 to November 30.
** Annualized.
*** Period from December 31, 1999 (commencement of operations) to February
29, 2000.
+ Not annualized.
++ Computed using average shares outstanding throughout the period.
10 See accompanying notes to the financial statements.
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Alpha LIBOR Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund's investment objective is high total return comparable to the
3-month London Inter-Bank Offer Rate ("LIBOR"). The Fund seeks to achieve
its objective by investing primarily in relatively high quality, low
volatility fixed income instruments. The Fund's benchmark is the J.P.
Morgan U.S. 3-Month Cash Index.
Shares of GMO Alpha LIBOR Fund are not publicly offered and are
principally available only to other GMO Funds of the Trust and certain
accredited investors. Presently the Fund is closed to new investment.
On November 26, 2002, approximately 78% of the Fund's assets were
transferred to a new fund, the GMO Short-Duration Collateral Fund
("SDCF"). The Fund retained the National Century Financial Enterprises
bonds (through its investment in GMO SPV I, LLC (See Note 2)) and
generally retained other lower quality issues. Effective November 30,
2002, the Fund changed its fiscal year end from February 28 to November
30.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Shares of investment funds are valued at their net asset value as reported
on each business day. Portfolio securities listed on a securities exchange
for which market quotations are readily available are valued at the last
sale price or official closing price on each business day, or if there is
no such reported sale or official closing price, at the most recent quoted
bid price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated
11
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
into U.S. dollars at the current exchange rate. Short-term investments
with a remaining maturity of sixty days or less are valued at amortized
cost which approximates fair value. Securities for which quotations are
not readily available or whose values the Manager has determined to be
unreliable are valued at fair value as determined in good faith by the
Trustees or other persons acting at their direction. A security's value
may be deemed unreliable if, for example, the Manager becomes aware of
information or events occurring after the close of a foreign market that
would materially affect that security's value. The prices provided by the
Manager may differ from the value that would be realized if the securities
were sold and the differences could be material to the financial
statements. At May 31, 2003, the total value of such securities
represented 7% of net assets.
Some fixed income securities are valued at the closing bid for such
securities as supplied by a primary pricing source chosen by the Manager.
The Manager evaluates such primary pricing sources on an ongoing basis,
and may change a pricing source should it deem it appropriate. The Manager
is informed of erratic or unusual movements (including unusual inactivity)
in the prices supplied for a security and at its discretion may override a
price supplied by a source (by taking a price supplied by another source).
Securities may be valued by independent pricing services which use prices
provided by market makers or estimates of market values obtained from
yield data relating to investments or securities with similar
characteristics.
Certain securities held by the Fund were valued solely on the basis of a
price provided by the principal market maker. The prices provided by the
principal market makers may differ from the value that would be realized
if the securities were sold and the differences could be material to the
financial statements. At May 31, 2003, the total value of these securities
represented 30% of net assets. See also Note 2 for a description of the
valuation of GMO SPV I, LLC.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
12
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the counterparties are unable to meet the terms of the
contracts or if there are movements in foreign currency values that are
unfavorable to the Fund. The value of the currencies the Fund has
committed to buy or sell is shown under Note 7 and represents the currency
exposure the Fund has acquired or hedged through forward currency
contracts as of May 31, 2003.
FUTURES CONTRACTS
The Fund may purchase and sell futures contracts to manage its exposure to
the financial markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. Upon entering into a futures contract, the Fund is required
to deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. government and agency
obligations in accordance with the initial margin requirements of the
broker or exchange. In addition, the Fund maintains cash or securities in
an amount that at least equals the net amount payable in the event the
Fund must deliver the full amount of the contracts. Futures contracts are
marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. The payable
or receivable is liquidated on the following business day. Gains or losses
are recognized but not considered realized until the contracts expire or
are closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from the changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 7 for
all open futures contracts as of May 31, 2003.
13
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At May 31, 2003, there were no
open written option contracts.
The Fund may also purchase put and call options. Purchasing call options
tends to increase the Fund's exposure to the underlying instrument.
Purchasing put options tends to decrease the Fund's exposure to the
underlying instrument. The Fund pays a premium which is included in the
Fund's Statement of Assets and Liabilities as an investment and
subsequently marked to market to reflect the current value of the option.
Premiums paid for purchasing options which expire are treated as realized
losses. Premiums paid for purchasing options which are exercised or closed
are added to the amounts paid or offset against the proceeds on the
underlying future, security or currency transaction to determine the
realized gain or loss. The risk associated with purchasing put and call
options is limited to the premium paid. See Schedule of Investments for
all open purchased option contracts as of May 31, 2003.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by a primary pricing source chosen by the Manager.
LOAN AGREEMENTS
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the "lender") that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement.
When investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund
14
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
may be subject to the credit risk of both the borrower and the lender that
is selling the loan agreement. When the Fund purchases assignments from
lenders it acquires direct rights against the borrower on the loan.
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than
their underlying instruments, but any loss is limited to the amount of the
original investment.
SWAP AGREEMENTS
The Fund may enter into swap agreements to manage its exposure to the
financial markets. A swap is an agreement to exchange the return generated
by one instrument for the return generated by another instrument. The Fund
may enter into interest rate, total return, forward swap spread lock and
credit default swap agreements to manage its exposure to interest rates
and credit risk. Interest rate swap agreements involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. Total return swap
agreements involve commitments to pay interest in exchange for a market
linked return, both based on notional amounts. To the extent the total
return of the security or index underlying the transaction exceeds or
falls short of the offsetting interest rate obligation, the Fund will
receive a payment from or make a payment to the counterparty,
respectively. Forward swap spread lock swap agreements involve commitments
to pay or receive a settlement amount calculated as the difference between
the swap spread and a fixed spread, multiplied by the notional amount
times the duration of the swap rate. The swap spread is the difference
between the benchmark swap rate (market rate) and the specific treasury
rate. In a credit default swap, one party makes a stream of payments to
another party in exchange for the right to receive a specified return in
the event of a default by a third party on its obligation. The Fund may
use credit default swaps to provide a measure of protection against
defaults of sovereign or corporate issuers (i.e., to reduce risk where the
Fund owns or has exposure to the issuer) or to take an active long or
short position with respect to the likelihood of a particular issuer's
default. In connection with these agreements, cash or securities may be
set aside as collateral by the Fund's custodian in accordance with the
terms of the swap agreement. The Fund earns interest on cash set aside as
collateral. Swaps are marked to market daily based upon quotations from
market makers and the change in value, if any, is recorded as unrealized
gain or loss in the Statement of Operations. Payments received or made at
the end of the measurement period are recorded as realized gain or loss in
the Statement of Operations. Net payments of interest on interest rate
swap agreements are included as part of interest income. These financial
instruments
15
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
are not actively traded on financial markets. The values assigned to these
instruments are based upon the best available information and because of
the uncertainty of the valuation, these values may differ significantly
from the values that would have been realized had a ready market for these
instruments existed, and the differences could be material. Entering into
these agreements involves, to varying degrees, elements of credit, legal,
market, and documentation risk in excess of the amounts recognized on the
Statement of Assets and Liabilities. Such risks involve the possibility
that there will be no liquid market for these agreements, that the
counterparty to the agreements may default on its obligation to perform or
disagree as to the meaning of contractual terms in the agreements, or that
there may be unfavorable changes in interest rates. See Note 7 for a
summary of open swap agreements as of May 31, 2003.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the
value of the collateral declines or if the seller enters insolvency
proceedings, recovery of cash by the Fund may be delayed or limited.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements with certain banks
and broker/dealers whereby the Fund sells portfolio assets concurrent with
an agreement by the Fund to repurchase the same assets at a later date at
a fixed price. In connection with these agreements, the Fund establishes
segregated accounts with its custodian in which the Fund maintains cash,
U.S. Government securities or other liquid high grade debt obligations in
the name of the counterparty equal in value to its obligations in respect
of reverse repurchase agreements. Reverse repurchase agreements involve
the risk that the market value of the securities the Fund has sold may
decline below the price at which it is obligated to repurchase them under
the agreement. At May 31, 2003, the Fund held no open reverse repurchase
agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the
16
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
investment of collateral, the risk of delay in recovery or loss of rights
in collateral should the borrower of the securities fail financially. The
Fund receives compensation for lending its securities. At May 31, 2003,
the Fund had no securities on loan.
TAXES AND DISTRIBUTIONS
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss carryovers for
U.S. federal income tax purposes. Therefore, no provision for U.S. federal
income or excise tax is necessary. Taxes on foreign dividend income are
withheld in accordance with the applicable country's tax treaty with the
United States.
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Interest income is
recorded on an accrual basis and is adjusted for the amortization of
premiums and discounts. Income is not recognized, nor are premium and
discount amortized on securities for which collection in the ordinary
course of business is not expected. Dividend income is recorded on the
ex-dividend date. Non-cash dividends, if any, are recorded at fair market
value of the securities received. In determining the net gain or loss on
securities sold, the cost of securities is determined on the identified
cost basis. Interest income on inflation indexed securities is accrued
daily based upon an inflation adjusted principal. Additionally, any
increase in principal or face amount of these securities is recorded as
interest income.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
17
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
2. CREATION OF GMO SPV I, LLC
In November 2002, the sponsor of certain asset-backed securities held by
the Fund defaulted on its obligations with respect to these securities.
National Century Financial Enterprises ("National Century"), the sponsor
of $3.35 billion of health care asset-backed receivables (the "NPF
bonds"), including two series held by the Fund, NPF VI and NPF XII,
allegedly violated the terms of the bonds' indentures by, among other
things, purportedly spending cash collateral, accepting collateral other
than permitted receivables, moving receivables between trusts to meet
compliance tests and reimbursing health care providers for more than the
value of receivables purchases. National Century, its affiliated
operations, the trusts, and many of the health care providers have
declared bankruptcy. Federal authorities are currently investigating the
circumstances surrounding the defaults. As a result of these events, no
active market currently exists for the NPF bonds, and therefore the Fund
may be exposed to the bonds for an indefinite period.
The NPF bonds have been placed in a special purpose Delaware limited
liability company, GMO SPV I, LLC (the "SPV"), to facilitate the
redemption of the NPF bonds in-kind, if necessary, to protect the
interests of non-redeeming shareholders. The Fund and the SPV recently
joined with certain other holders of the NPF bonds in filing a lawsuit
against National Century, certain of its affiliates, the indenture
trustees to the trusts holding the NPF bonds and certain other parties.
The Fund's pro rata portion of the costs associated with this action,
together with any other costs incurred in connection with the Fund's
attempted recovery of losses associated with the NPF bonds, will be borne
by the Fund.
The current net asset value of the Fund's shares of the SPV reflect the
GMO Trust's Trustees' good faith determination as to the fair market value
of the NPF bonds, based on information reasonably available to them at
this time. Due to the subjective and variable nature of fair value
pricing, the value for the NPF bonds and the SPV determined by the GMO
Trust's Trustees may be materially different from the value ultimately
realized.
For commercial reasons related to the NPF bonds, on November 26, 2002, the
Fund undertook a reorganization transaction with a new series of GMO
Trust, GMO Short-Duration Collateral Fund ("SDCF"). The reorganization
occurred through the in-kind redemption on November 26, 2002 ("Redemption
Date") of approximately 78% of each shareholder's interest in the Fund,
and the contribution of those securities received to SDCF.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO does not charge the Fund any management or service fees. In addition,
GMO has contractually agreed to reimburse all of the Fund's expenses
(excluding brokerage commissions and other investment-related costs,
hedging transaction fees, fees and expenses of the independent
18
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Trustees of the Trust (including legal fees), extraordinary, non-recurring
and certain other unusual expenses (including taxes), securities lending
fees and expenses, interest expense and transfer taxes) until June 30,
2004.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended May 31, 2003, was $36,869. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
4. PURCHASES AND SALES OF SECURITIES
For the six months ended May 31, 2003, cost of purchases and proceeds from
sales of investments, other than short-term obligations, were as follows:
<Table>
<Caption>
Purchases Sales
----------- ------------
U.S. Government securities $69,294,077 $ 20,046,881
Investments (non-U.S. Government securities) 79,707,834 138,674,703
</Table>
At May 31, 2003, the cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
$336,834,959 $2,407,900 $(96,284,573) $(93,876,673)
</Table>
5. PRINCIPAL SHAREHOLDERS
At May 31, 2003, 70.9% of the outstanding shares of the Fund were held by
four shareholders each holding in excess of 10% of the Fund's outstanding
shares. One of the shareholders is another fund of GMO Trust. Investment
activities of these shareholders may have a material effect on the Fund.
19
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
6. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
For the period
Six Months Ended March 1, 2002 through Year ended
May 31, 2003 November 30, 2002* February 28, 2002
---------------- ------------------------ -----------------
Shares sold -- 18,062,276 32,903,902
Shares issued to shareholders in reinvestment of
distributions -- 480,081 2,974,284
Shares repurchased (1,582,694) (62,845,666) (37,889,038)
------------- ------------ ------------
Net increase (decrease) (1,582,694) (44,303,309) (2,010,852)
Fund shares:
Beginning of period 11,851,374 56,154,683 58,165,535
------------- ------------ ------------
End of period 10,268,680 11,851,374 56,154,683
============= ============ ============
</Table>
* Change in fiscal year end. See Note 1.
7. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at May 31, 2003 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Settlement Net Unrealized
Date Deliver Units of Currency Value Depreciation
---------- -------- ----------------- ------------- --------------
Sales
7/01/03 GBP 3,000,000 $4,906,286 $(216,386)
=========
</Table>
<Table>
GBP - British Pound
</Table>
FUTURES CONTRACTS
<Table>
<Caption>
Number of Contract Net Unrealized
Contracts Type Expiration Date Value Depreciation
--------- ---------------------------- ------------------ ------------- --------------
Sales
400 U.S. Treasury Note 5 Yr. September 2003 $46,275,000 $(105,026)
=========
</Table>
20
<Page>
GMO ALPHA LIBOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------- ---------- -------------------------------------------------- --------------
INTEREST RATE SWAPS
10,000,000 USD 3/4/08 Agreement with JP Morgan Chase Bank dated 3/4/03 $(259,547)
to pay the notional amount multiplied by 3.096%
and to receive the notional amount multiplied by
the 3 month Floating Rate LIBOR adjusted by a
specified spread.
11,400,000 USD 2/25/13 Agreement with Bank of America N.A. dated 2/24/03 (548,754)
to pay the notional amount multiplied by 4.25% and
to receive the notional amount multiplied by the 3
month Floating Rate LIBOR adjusted by a specified
spread.
TOTAL RETURN SWAPS
10,000,000 USD 9/1/03 Agreement with Lehman Brothers Special Financing 286,013
Inc. dated 3/01/03 to receive (pay) the notional
amount multiplied by the change in market value of
Lehman Brothers CMBS AAA Index and to pay the
initial market value multiplied by the 1 month
LIBOR adjusted by a specified spread.+
15,000,000 USD 10/22/03 Agreement with Bank of America N.A. dated 4/22/03 804,030
to receive (pay) the notional amount multiplied by
the change in market value of Bank of America
Securities LLC AAA Commercial Mortgage-Backed
Securities Daily Index and to pay the initial
market value multiplied by the 6 month LIBOR
adjusted by a specified spread.
---------
$ 281,742
=========
</Table>
+ Swap agreement is fair valued (See Note 1).
21
<Page>
FORM N-CSR (2 OF 3)
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 (RESERVED)
ITEM 6 (RESERVED)
ITEM 7 (DISCLOSURE OF PROXY VOTING POLICIES & PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES): Not applicable to this filing.
ITEM 8 (RESERVED)
ITEM 9 (CONTROLS AND PROCEDURES):
SUB-ITEM 9a - Within the 90-day period immediately preceding the filing of
this Report, the Trust's Chief Executive Officer and Principal Financial
Officer has each evaluated the effectiveness of the Trust's "Disclosure
Controls and Procedures" and has concluded that they were effective. As
such term is used above, the Trust's Controls and Procedures are controls
and other procedures of the Trust that are designed to ensure that
information required to be disclosed by the Trust in the reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in
the Securities and Exchange Commission's rules and forms. Disclosure
Controls and Procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by
the Trust in such reports is accumulated and communicated to the Trust's
management, including its principal executive officer or officers and
principal financial officer or officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.
SUB-ITEM 9b - There were no significant changes in the registrant's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
ITEM 10 (EXHIBITS):
SUB-ITEM 10a - Not applicable to this filing.
SUB-ITEM 10b - Certification Exhibits are attached.
<Page>
FORM N-CSR (3 OF 3)
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.
GMO Trust
By: /s/ Scott Eston
----------------------------------------------------------
Scott Eston, Chief Executive Officer
Date August 8, 2003
---------------------
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: /s/ Scott Eston
----------------------------------------------------------
Scott Eston, Chief Executive Officer
Date August 8, 2003
---------------------
By: /s/ Susan Randall Harbert
----------------------------------------------------------
Susan Randall Harbert, Chief Financial Officer
Date August 8, 2003
---------------------