<Page>
-----------------------------
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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: 2/28/2004
--------------------------
Date of reporting period: 3/1/03 - 8/31/03
-------------------------
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 0549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
<Page>
ITEM 1 REPORTS TO STOCKHOLDERS.
(Semi-Annual Report for the period 3/1/03 through 8/31/03 is filed
herewith)
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 [RESERVED]
ITEM 7 DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 8 [RESERVED]
ITEM 9 CONTROLS AND PROCEDURES.
(a) The Registrant's Principal Executive Officer and Principal Financial
Officer concluded that the Registrant's disclosure controls and
procedures are effective based on their evaluation of the Registrant's
disclosure controls and procedures as of a date within 90 days prior to
the filing date of this report (the "Evaluation Date").
(b) There were no significant changes in the Registrant's internal
controls or in other factors that could significantly affect internal
controls subsequent to the Evaluation Date, including any corrective
actions with regard to significant deficiencies and material weaknesses.
ITEM 10 (EXHIBITS):
(a)(1) Code of Ethics Described in Item 2: Not applicable to this
filing.
(a)(2) Certifications of the Principal Executive Officer and Principal
Financial Officer of the Registrant as required by Rule 30a-2(a) under
the Investment Company Act of 1940 (17 CFR 270.30a-2(a) are attached
hereto as Exhibit 99CERT.302
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 are attached hereto as Exhibit 99CERT.906.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) GMO Trust
By (Signature and Title): /s/ Scott Eston
-------------------------------------------
Scott Eston, Chief Executive Officer
Date November 7, 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 (Signature and Title): /s/ Scott Eston
-------------------------------------------
Scott Eston, Chief Executive Officer
Date November 7, 2003
--------------------------
By (Signature and Title): /s/ Susan Randall Harbert
-------------------------------------------
Susan Randall Harbert, Chief Financial Officer
Date November 7, 2003
--------------------------
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
COMMON STOCKS -- 94.4%
AUTO & TRANSPORTATION -- 2.7%
456,300 Burlington Northern Santa Fe Co 12,936,105
126,400 CSX Corp 4,080,192
13,600 Expeditors International Washington Inc 512,856
974,311 Ford Motor Co 11,263,035
962,616 General Motors Corp 39,563,518
12,800 Genuine Parts Co 409,856
195,500 Goodyear Tire & Rubber Co 1,391,960
128,700 Harley Davidson Inc 6,411,834
76,600 United Parcel Service, Class B 4,807,416
--------------
81,376,772
--------------
CONSUMER DISCRETIONARY -- 11.9%
38,800 Abercrombie & Fitch Co, Class A* 1,181,072
451,500 Amazon.com Inc* 20,967,660
1,890,200 AOL Time Warner Inc* 30,923,672
226,100 Apollo Group Inc* 14,486,227
241,200 Autonation Inc* 4,532,148
39,400 Black and Decker Corp 1,685,532
165,500 CDW Corp* 8,541,455
257,200 Clear Channel Communications Inc* 11,604,864
82,100 Coach Inc* 4,765,084
255,200 Dollar Tree Stores Inc* 10,011,496
375,400 Eastman Kodak Co 10,469,906
641,200 eBay Inc* 35,605,836
196,100 EchoStar Communications Corp* 7,236,090
311,200 Federated Department Stores Inc 13,599,440
345,200 Fox Entertainment Group Inc, Class A* 10,901,416
593,200 Gap Inc 12,391,948
779,800 Home Depot Inc 25,078,368
465,600 International Game Technology 12,031,104
211,600 Jones Apparel Group Inc* 6,536,324
1,765,100 Liberty Media Corp, Series A* 21,357,710
181,600 Limited Brands 3,079,936
117,400 Liz Claiborne Inc 4,046,778
259,200 May Department Stores Co 7,148,736
452,300 McDonald's Corp 10,140,566
97,200 Mohawk Industries Inc* 7,091,712
9,900 New York Times Co 439,461
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
160,300 Penney (JC) Co Inc 3,401,566
40,600 Pixar Inc* 2,956,898
63,400 R.R. Donnelley and Sons 1,593,876
71,300 Ross Stores Inc 3,592,094
485,400 Sears Roebuck & Co 21,367,308
129,500 Toys R Us Inc* 1,763,790
10,500 Tribune Co 485,625
58,200 VF Corp 2,333,820
94,800 Viacom Inc, Class A 4,265,052
198,700 Wal Mart Stores Inc 11,757,079
4,800 Washington Post Co 3,340,944
75,700 Whirlpool Corp 5,267,206
154,700 Yahoo! Inc* 5,166,980
--------------
363,146,779
--------------
CONSUMER STAPLES -- 4.8%
316,552 Albertsons Inc 6,653,923
1,449,300 Altria Group Inc 59,740,146
133,100 Campbell Soup Co 3,221,020
3,000 Coca Cola Co 130,560
193,100 Coca Cola Enterprises Inc 3,570,419
224,600 Colgate-Palmolive Co 12,415,888
183,800 CVS Corp 5,991,880
124,900 General Mills Co 5,790,364
57,900 Heinz (HJ) Co 1,873,644
289,100 Kroger Co* 5,553,611
1,400 Pepsico Bottling Group Inc 33,768
85,200 RJ Reynolds Tobacco Holdings 2,909,580
958,100 Safeway Inc* 23,387,221
244,700 Sara Lee Corp 4,644,406
183,900 Sysco Corp 5,785,494
159,400 Tyson Foods Inc, Class A 1,785,280
128,600 UST Inc 4,295,240
--------------
147,782,444
--------------
FINANCIAL SERVICES -- 19.8%
100,500 AFLAC Inc 3,217,005
578,000 Allstate Corp 20,663,500
97,900 AMBAC Financial Group 6,355,668
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
693,809 Bank of America Corp 54,984,363
148,379 Bear Stearns Cos Inc 10,383,562
198,800 Capital One Financial Corp 10,615,920
190,500 Cigna Corp 9,083,040
1,526,300 Citigroup Inc 66,165,105
87,500 CNA Financial Corp* 1,903,125
98,100 Comerica Inc 4,840,254
695,300 Conseco Inc* 23,292
273,300 Countrywide Financial Corp 18,543,405
28,800 D & B Corp* 1,212,480
928,800 Fannie Mae 60,176,952
143,250 Fidelity National Financial Inc 4,139,925
535,588 FleetBoston Financial Corp 15,848,049
134,400 Franklin Resources Inc 5,804,736
637,100 Freddie Mac 33,861,865
54,600 Golden West Financial Corp 4,710,342
137,550 Greenpoint Financial Corp 4,660,194
140,000 Hartford Financial Services Group Inc 7,450,800
167,600 Hudson City Bancorp Inc 4,850,344
74,500 Huntington Bancshares Inc 1,490,000
887,280 J.P. Morgan Chase & Co 30,362,722
267,700 Janus Capital Group Inc 4,623,179
151,600 John Hancock Financial Services 4,628,348
271,700 KeyCorp 7,398,391
77,700 Lehman Brothers Holdings Inc 5,107,221
186,000 Lincoln National Corp 6,588,120
240,700 Loews Corp 9,907,212
123,750 MBIA Inc 6,986,925
479,800 MBNA Corp 11,198,532
282,500 Merrill Lynch & Co Inc 15,192,850
219,300 MetLife Inc 6,232,506
225,400 MGIC Investment Corp 12,705,798
2,100 Moody's Corp 108,906
613,100 Morgan Stanley 29,913,149
265,100 National City Corp 8,398,368
44,100 Old Republic International Corp 1,481,319
241,400 PMI Group Inc 8,540,732
126,100 PNC Financial Services Group 6,002,360
217,700 Radian Group Inc 10,360,343
88,000 Regions Financial Corp 3,102,880
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
49,700 SEI Investments Co 1,734,530
168,900 SLM Corp 6,786,402
132,400 Southtrust Corp 3,838,276
159,000 Sovereign Bancorp Inc 3,129,120
84,500 Suntrust Banks Inc 5,165,485
119,700 Torchmark Corp 4,831,092
93,300 Union Planters Corp 2,976,270
575,600 Unumprovident Corp 8,115,960
115,700 Wachovia Corp 4,876,755
606,950 Washington Mutual Inc 23,658,911
43,800 Wells Fargo & Co 2,196,132
--------------
607,132,720
--------------
HEALTH CARE -- 17.6%
58,200 Aetna Inc 3,317,400
76,100 Allergan Inc 6,046,906
840,100 Amgen Inc* 55,362,590
306,100 Biomet Inc 9,100,353
337,100 Boston Scientific Corp* 20,259,710
1,694,900 Bristol Myers Squibb Co 42,999,613
283,200 Forest Laboratories Inc* 13,310,400
175,600 Genentech Inc* 13,942,640
117,800 Genzyme Corp - General Division* 5,554,270
318,000 Guidant Corp 15,963,600
700 HCA Inc. 26,593
169,800 Health Net Inc* 5,404,734
140,700 Johnson & Johnson 6,975,906
165,400 Lilly (Eli) & Co 11,004,062
193,000 Lincare Holdings Inc* 6,683,590
265,693 Medco Health Solutions Inc* 7,094,003
258,400 Medtronic Inc 12,811,472
2,203,100 Merck & Co Inc 110,859,992
154,700 Mylan Laboratories Inc 5,631,080
4,317,680 Pfizer Inc 129,184,986
1,183,400 Schering Plough Corp 17,975,846
74,100 St Jude Medical Inc* 3,858,387
210,200 Stryker Corp 15,933,160
5,300 UnitedHealth Group Inc 261,979
70,200 Varian Medical Systems Inc* 3,920,670
44,300 WellPoint Health Networks Inc* 3,455,400
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
254,900 Zimmer Holdings Inc* 13,188,526
--------------
540,127,868
--------------
INTEGRATED OILS -- 2.3%
59,500 Amerada Hess Corp 2,805,425
672,315 ConocoPhillips 37,542,070
227,510 Exxon Mobil Corp 8,577,127
536,500 Marathon Oil Corp 14,962,985
207,600 Occidental Petroleum Corp 7,126,908
--------------
71,014,515
--------------
MATERIALS & PROCESSING -- 1.1%
102,700 Ashland Inc 3,395,262
177,200 Ecolab Inc 4,569,988
66,100 Energizer Holdings Inc* 2,431,158
231,000 Georgia-Pacific Group 5,352,270
244,000 Sealed Air Corp* 11,873,040
221,300 Sherwin Williams Co 6,656,704
--------------
34,278,422
--------------
OTHER -- 2.4%
42,600 3M Co 6,069,222
744,700 General Electric Co 22,020,779
955,600 Honeywell International Inc 27,702,844
102,100 Johnson Controls Inc 10,107,900
148,000 Textron Inc 6,660,000
--------------
72,560,745
--------------
OTHER ENERGY -- 1.8%
124,580 Apache Corp 8,593,528
277,100 Burlington Resources Inc 13,417,182
2,524 Cross Timbers Royalty Trust 56,378
826,200 El Paso Corp 6,064,308
789,300 Halliburton Co 19,085,274
341,033 XTO Energy Inc 7,158,283
--------------
54,374,953
--------------
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
PRODUCER DURABLES -- 2.7%
176,800 American Power Conversion Corp 3,168,256
458,900 Boeing Co 17,158,271
184,900 Centex Corp 13,945,158
24,100 Cooper Industries Ltd, Class A 1,226,449
291,800 DR Horton Inc 9,080,816
73,700 Lennar Corp 4,956,325
59,500 Lexmark International Inc* 3,988,880
72,300 Northrop Grumman Corp 6,903,204
62,800 Pulte Homes Inc 4,179,968
110,900 United Technologies Corp 8,899,725
126,900 Waters Corp* 3,870,450
553,700 Xerox Corp* 5,968,886
--------------
83,346,388
--------------
TECHNOLOGY -- 16.8%
156,200 Applera Corp-Applied Biosystems Group 3,398,912
452,500 BEA Systems Inc* 6,131,375
995,400 BMC Software Inc* 14,612,472
325,900 Cadence Design Systems Inc* 4,634,298
132,300 Ceridian Corp* 2,571,912
2,054,200 Cisco Systems Inc* 39,337,930
433,100 Citrix Systems Inc* 8,917,529
1,109,200 Computer Associates International Inc 28,428,796
608,200 Compuware Corp* 3,618,790
1,953,300 Corning Inc* 16,114,725
471,100 Dell Corp* 15,371,993
534,300 Electronic Data Systems Corp 11,663,769
1,488,900 EMC Corp* 18,983,475
944,400 Gateway Inc* 5,449,188
1,655,900 Hewlett-Packard Co 32,985,528
973,500 IBM Corp 79,836,735
2,453,000 Intel Corp 70,204,860
431,600 Juniper Networks Inc* 7,432,152
1,054,400 Microsoft Corp 27,962,688
5,919,100 Oracle Corp* 75,646,098
666,700 Qualcomm Inc 27,521,376
111,700 Rockwell Automation 3,040,474
1,371,700 Tellabs Inc* 8,957,201
--------------
512,822,276
--------------
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
UTILITIES -- 10.5%
88,500 Alltel Corp 4,053,300
70,400 Ameren Corp 2,992,000
165,800 American Electric Power Co Inc 4,693,798
902,071 AT&T Corp 20,116,183
2,094,000 AT&T Wireless Services Inc* 18,050,280
1,341,800 Bellsouth Corp 33,813,360
161,700 Cablevision Systems Corp, Class A* 3,258,255
158,900 Centerpoint Energy Inc 1,349,061
457,100 Citizens Communications Co* 5,210,940
674,600 Comcast Corp, Special Class A* 19,131,656
104,800 Consolidated Edison Inc 4,142,744
67,900 Constellation Energy Group Inc 2,470,881
350,600 Cox Communications Inc, Class A* 11,471,632
85,000 DTE Energy Co 2,967,350
230,400 Duke Energy Co 3,935,232
319,900 Edison International* 6,033,314
66,400 Exelon Corp 3,910,960
77,700 FPL Group Inc 4,806,522
1,000 Keyspan Corp 33,750
73,900 Kinder Morgan Inc 3,935,175
1,367,900 Nextel Communications Inc* 26,373,112
528,400 PG & E Corp* 11,714,628
63,300 Pinnacle West Capital Corp 2,171,190
196,300 PPL Corp 7,787,221
129,300 Public Service Enterprise Group Inc 5,474,562
376,700 Qwest Communications International Inc* 1,676,315
2,170,782 SBC Communications Inc 48,820,887
152,400 Sempra Energy 4,533,900
1,448,200 Sprint Corp (Fon Group) 21,389,914
269,200 Teco Energy Inc 3,184,636
111,900 TXU Corp 2,461,800
821,322 Verizon Communications Inc 29,009,094
--------------
320,973,652
--------------
TOTAL COMMON STOCKS (COST $2,833,506,517) 2,888,937,534
--------------
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 7.9%
CASH EQUIVALENTS -- 2.6%
18,443,555 Dreyfus Money Market Fund(a) 18,443,555
$ 43,126,480 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.05%, due 9/29/03(a) 43,126,480
17,789,673 Merrimac Money Market Fund(a) 17,789,673
--------------
79,359,708
--------------
U.S. GOVERNMENT -- 0.3%
$ 7,500,000 U.S. Treasury Bill, 0.93%, due 10/23/03(b) 7,487,887
--------------
REPURCHASE AGREEMENTS -- 5.0%
$ 151,593,712 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due 9/02/03, with a maturity value of
$151,605,503, and an effective yield of 0.70%,
collateralized by U.S. Treasury Bill with a rate of
1.175%, maturity date of 9/25/03, and a market value of
$154,962,484. 151,593,712
$ 2,349,026 Morgan Stanley Repurchase Agreement, dated 8/29/03, due
9/02/03, with a maturity value of $2,349,208, and an
effective yield of 0.70%, collateralized by U.S.
Treasury Bond with a rate of 6.625%, maturity date of
2/15/27, and a market value, including accrued interest
of $2,408,591. 2,349,026
--------------
153,942,738
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $240,790,333) 240,790,333
--------------
TOTAL INVESTMENTS -- 102.3%
(Cost $3,074,296,850) 3,129,727,867
Other Assets and Liabilities (net) -- (2.3%) (69,914,656)
--------------
TOTAL NET ASSETS -- 100.0% $3,059,813,211
==============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</Table>
* Non-income producing security.
(a) Represents investment of security lending collateral (Note 1).
(b) All or a portion of this security has been segregated to cover margin
requirements on open financial futures contracts (Note 6).
8 See accompanying notes to the financial statements.
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$76,404,615 (cost $3,074,296,850) (Note 1) $3,129,727,867
Cash 250,000
Receivable for Fund shares sold 5,678,634
Dividends and interest receivable 3,996,092
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 839,109
Receivable for expenses reimbursed by Manager (Note 2) 57,815
--------------
Total assets 3,140,549,517
--------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 79,359,708
Payable for Fund shares repurchased 23,924
Payable to affiliate for (Note 2):
Management fee 829,829
Shareholder service fee 344,888
12b-1 fee - Class M 35,341
Administration fee - Class M 14,134
Accrued expenses 128,482
--------------
Total liabilities 80,736,306
--------------
NET ASSETS $3,059,813,211
==============
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
NET ASSETS CONSIST OF:
Paid-in capital $3,520,207,440
Accumulated undistributed net investment income 6,685,546
Accumulated net realized loss (525,169,992)
Net unrealized appreciation 58,090,217
--------------
$3,059,813,211
==============
NET ASSETS ATTRIBUTABLE TO:
Class II shares $ 462,439,302
==============
Class III shares $1,473,043,377
==============
Class IV shares $ 479,171,387
==============
Class V shares $ 431,852,259
==============
Class VI shares $ 127,269,962
==============
Class M shares $ 86,036,924
==============
SHARES OUTSTANDING:
Class II 39,357,390
==============
Class III 125,117,114
==============
Class IV 40,762,382
==============
Class V 36,759,350
==============
Class VI 10,828,317
==============
Class M 7,329,101
==============
NET ASSET VALUE PER SHARE:
Class II $ 11.75
==============
Class III $ 11.77
==============
Class IV $ 11.76
==============
Class V $ 11.75
==============
Class VI $ 11.75
==============
Class M $ 11.74
==============
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends $ 26,207,920
Interest (including securities lending income of $32,499) 226,308
------------
Total income 26,434,228
------------
EXPENSES:
Management fee (Note 2) 4,590,889
Custodian and transfer agent fees 193,392
Legal fees 51,796
Registration fees 28,888
Trustees fees and related expenses (Note 2) 28,490
Audit fees 26,496
Miscellaneous 22,264
Fees reimbursed by Manager (Note 2) (322,836)
------------
4,619,379
Shareholder service fee (Note 2) - Class II 382,592
Shareholder service fee (Note 2) - Class III 1,010,827
Shareholder service fee (Note 2) - Class IV 286,415
Shareholder service fee (Note 2) - Class V 189,567
Shareholder service fee (Note 2) - Class VI 5,245
------------
1,874,646
12b-1 fee (Note 2) - Class M 95,449
------------
Administration fee (Note 2) - Class M 76,359
------------
Net expenses 6,665,833
------------
Net investment income 19,768,395
------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (37,441,865)
Closed futures contracts 6,150,815
------------
Net realized loss (31,291,050)
------------
Change in net unrealized appreciation (depreciation) on:
Investments 482,001,628
Open futures contracts 2,588,424
------------
Net unrealized gain 484,590,052
------------
Net realized and unrealized gain 453,299,002
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $473,067,397
============
</Table>
See accompanying notes to the financial statements. 11
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 19,768,395 $ 35,105,334
Net realized loss (31,291,050) (302,568,297)
Change in net unrealized appreciation (depreciation) 484,590,052 (338,582,521)
-------------- --------------
Net increase (decrease) in net assets from
operations 473,067,397 (606,045,484)
-------------- --------------
Distributions to shareholders from:
Net investment income
Class II (3,011,849) (2,561,727)
Class III (11,810,632) (16,337,118)
Class IV (4,978,597) (9,588,920)
Class V (3,899,536) (5,745,428)
Class VI (253,221) (370,335)
Class M (580,363) --
-------------- --------------
Total distributions from net investment income (24,534,198) (34,603,528)
-------------- --------------
(24,534,198) (34,603,528)
-------------- --------------
Net share transactions (Note 5):
Class II 167,966,118 115,982,471
Class III 117,354,092 143,190,844
Class IV (76,721,887) (126,130,617)
Class V (69,829,020) 84,738,772
Class VI 125,711,862 --
Class M 13,444,771 67,581,135
-------------- --------------
Increase in net assets resulting from net share
transactions 277,925,936 285,362,605
-------------- --------------
Total increase (decrease) in net assets 726,459,135 (355,286,407)
NET ASSETS:
Beginning of period 2,333,354,076 2,688,640,483
-------------- --------------
End of period (including accumulated undistributed
net investment income of $6,685,546 and
$11,451,349, respectively) $3,059,813,211 $2,333,354,076
============== ==============
</Table>
12 See accompanying notes to the financial statements.
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 -------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.97 $ 12.89 $ 13.94 $ 16.62 $ 18.57 $ 19.98
-------- -------- -------- -------- ------- -------
Income from investment operations:
Net investment income 0.07+ 0.14+ 0.17+ 0.20+ 0.23+ 0.25+
Net realized and unrealized gain
(loss) 1.81 (2.91) (1.04) 0.03** 2.29 2.55
-------- -------- -------- -------- ------- -------
Total from investment operations 1.88 (2.77) (0.87) 0.23 2.52 2.80
-------- -------- -------- -------- ------- -------
Less distributions to shareholders:
From net investment income (0.10) (0.15) (0.17) (0.18) (0.24) (0.29)
From net realized gains -- -- (0.01) (2.73) (4.23) (3.92)
-------- -------- -------- -------- ------- -------
Total distributions (0.10) (0.15) (0.18) (2.91) (4.47) (4.21)
-------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 11.75 $ 9.97 $ 12.89 $ 13.94 $ 16.62 $ 18.57
======== ======== ======== ======== ======= =======
TOTAL RETURN(a) 18.87%++ (21.63)% (6.29)% 0.75% 13.61% 14.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $462,439 $241,431 $176,456 $114,454 $95,041 $41,684
Net expenses to average daily net
assets 0.55%* 0.55% 0.55% 0.55% 0.55% 0.55%
Net investment income to average
daily net assets 1.32%* 1.30% 1.27% 1.21% 1.21% 1.29%
Portfolio turnover rate 31%++ 74% 69% 81% 90% 71%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.02%* 0.03% 0.02% 0.02% 0.02% 0.22%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
* Annualized.
** The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain/ loss for the period due to
the timing of purchases and redemptions of Fund shares in relation to
the fluctuating market values of the Fund.
+ Computed using average shares outstanding throughout the period.
++ Not Annualized.
See accompanying notes to the financial statements. 13
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 --------------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $ 12.90 $ 13.95 $ 16.63 $ 18.59 $ 19.99
---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.08+ 0.15+ 0.18+ 0.20+ 0.24+ 0.26+
Net realized and unrealized gain
(loss) 1.81 (2.92) (1.05) 0.04** 2.28 2.55
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 1.89 (2.77) (0.87) 0.24 2.52 2.81
---------- ---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.10) (0.15) (0.17) (0.19) (0.25) (0.29)
From net realized gains -- -- (0.01) (2.73) (4.23) (3.92)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions (0.10) (0.15) (0.18) (2.92) (4.48) (4.21)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 11.77 $ 9.98 $ 12.90 $ 13.95 $ 16.63 $ 18.59
========== ========== ========== ========== ========== ==========
TOTAL RETURN(a) 18.97%++ (21.59)% (6.23)% 0.83% 13.66% 15.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $1,473,043 $1,141,725 $1,321,634 $1,532,124 $1,623,734 $1,780,011
Net expenses to average daily net
assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.48%
Net investment income to average
daily net assets 1.42%* 1.34% 1.33% 1.27% 1.27% 1.36%
Portfolio turnover rate 31%++ 74% 69% 81% 90% 71%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.02%* 0.03% 0.02% 0.02% 0.02% 0.22%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
* Annualized.
** The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain/ loss for the period due to
the timing of purchases and redemptions of Fund shares in relation to
the fluctuating market values of the Fund.
+ Computed using average shares outstanding throughout the period.
++ Not Annualized.
14 See accompanying notes to the financial statements.
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ------------- ------------- -------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.97 $ 12.89 $ 13.94 $ 16.62 $ 18.58 $ 19.99
-------- -------- -------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.08+ 0.16+ 0.18+ 0.21+ 0.25+ 0.27+
Net realized and unrealized gain
(loss) 1.81 (2.92) (1.04) 0.04** 2.28 2.55
-------- -------- -------- ---------- ---------- ----------
Total from investment operations 1.89 (2.76) (0.86) 0.25 2.53 2.82
-------- -------- -------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.10) (0.16) (0.18) (0.20) (0.26) (0.31)
From net realized gains -- -- (0.01) (2.73) (4.23) (3.92)
-------- -------- -------- ---------- ---------- ----------
Total distributions (0.10) (0.16) (0.19) (2.93) (4.49) (4.23)
-------- -------- -------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 11.76 $ 9.97 $ 12.89 $ 13.94 $ 16.62 $ 18.58
======== ======== ======== ========== ========== ==========
TOTAL RETURN(a) 19.02%++ (21.55)% (6.20)% 0.92% 13.74% 15.07%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $479,171 $463,254 $744,813 $1,287,842 $1,343,460 $1,543,655
Net expenses to average daily net
assets 0.44%* 0.44% 0.44% 0.44% 0.44% 0.44%
Net investment income to average
daily net assets 1.46%* 1.39% 1.36% 1.31% 1.32% 1.41%
Portfolio turnover rate 31%++ 74% 69% 81% 90% 71%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.02%* 0.03% 0.02% 0.02% 0.02% 0.22%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
* Annualized.
** The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain/ loss for the period due to
the timing of purchases and redemptions of Fund shares in relation to
the fluctuating market values of the Fund.
+ Computed using average shares outstanding throughout the period.
++ Not Annualized.
See accompanying notes to the financial statements. 15
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS V SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED
SIX MONTHS ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ----------------------
(UNAUDITED) 2003 2002*
---------------- ----------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.96 $ 12.88 $ 14.00
-------- -------- --------
Income from investment operations:
Net investment income 0.08+ 0.16+ 0.13+
Net realized and unrealized gain (loss) 1.81 (2.92) (1.10)
-------- -------- --------
Total from investment operations 1.89 (2.76) (0.97)
-------- -------- --------
Less distributions to shareholders:
From net investment income (0.10) (0.16) (0.14)
From net realized gains -- -- (0.01)
-------- -------- --------
Total distributions (0.10) (0.16) (0.15)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.75 $ 9.96 $ 12.88
======== ======== ========
TOTAL RETURN(a) 19.04%++ (21.55)% (6.96)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $431,852 $426,703 $445,738
Net expenses to average daily net assets 0.42%** 0.42% 0.42%**
Net investment income to average daily net
assets 1.50%** 1.41% 1.46%**
Portfolio turnover rate 31%++ 74% 69%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.02%** 0.03% 0.02%**
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
* Period from July 2, 2001(commencement of operations) through February
28, 2002.
** Annualized.
+ Computed using average shares outstanding throughout the period.
++ Not Annualized.
16 See accompanying notes to the financial statements.
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS VI SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
JUNE 30, 2003
(COMMENCEMENT
OF OPERATIONS) THROUGH
AUGUST 31, 2003
(UNAUDITED)
----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.54
--------
Income from investment operations:
Net investment income 0.03+
Net realized and unrealized gain 0.25
--------
Total from investment operations 0.28
--------
Less distributions to shareholders:
From net investment income (0.07)
--------
Total distributions (0.07)
--------
NET ASSET VALUE, END OF PERIOD $ 11.75
========
TOTAL RETURN(a) 2.39%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $127,270
Net expenses to average daily net assets 0.39%*
Net investment income to average daily net assets 1.28%*
Portfolio turnover rate 31%++
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.02%*
</Table>
(a) The total return would have been lower had certain expenses not been
reimbursed during the period shown.
* Annualized.
+ Computed using average shares outstanding throughout the period.
++ Not Annualized.
See accompanying notes to the financial statements. 17
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS M SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
APRIL 15, 2002
SIX MONTHS ENDED (COMMENCEMENT
AUGUST 31, 2003 OF OPERATIONS) THROUGH
(UNAUDITED) FEBRUARY 28, 2003
---------------- ----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.96 $ 12.89
------- -------
Income from investment operations:
Net investment income 0.06+ 0.11+
Net realized and unrealized gain (loss) 1.80 (2.94)
------- -------
Total from investment operations 1.86 (2.83)
------- -------
Less distributions to shareholders:
From net investment income (0.08) (0.10)
------- -------
Total distributions (0.08) (0.10)
------- -------
NET ASSET VALUE, END OF PERIOD $ 11.74 $ 9.96
======= =======
TOTAL RETURN(a) 18.76%++ (22.03)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $86,037 $60,242
Net expenses to average daily net assets 0.78%* 0.78%*
Net investment income to average daily net assets 1.11%* 1.18%*
Portfolio turnover rate 31%++ 74%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.02%* 0.03%*
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
* Annualized.
+ Computed using average shares outstanding throughout the period.
++ Not Annualized.
18 See accompanying notes to the financial statements.
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO U.S. Core Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24,
1985. The Declaration of Trust permits the Trustees to create an unlimited
number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series of shares into classes.
The Fund seeks high total return through investment in U.S. equity
securities. The Fund's benchmark is the S&P 500 Index.
Throughout the six months ended August 31, 2003, the Fund had five classes
of shares outstanding: Class II, Class III, Class IV, Class V and Class M.
Class M shares bear an administrative fee and a 12b-1 fee. (See Note 2)
Effective June 30, 2003, the Fund also had Class VI shares outstanding.
The principal economic difference among the classes of shares is the level
of fees borne by the classes. Eligibility for and automatic conversion
between the various classes of shares, excluding Class M, is generally
based on the total amount of assets invested in a particular fund or with
GMO, as more fully outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates fair value. Shares of mutual funds are
valued at their net asset value as reported on each business day.
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.
19
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for
all open futures contracts as of August 31, 2003.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and
20
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 the price
of the security or index underlying these transactions. As of August 31,
2003 the Fund held no open swap agreements.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
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 investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund loaned securities having a market
value of $76,404,615, collateralized by cash in the amount of $79,359,708,
which was invested in short-term instruments.
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.
21
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions are paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash
distributions. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code, of $170,940,887 expiring in 2010 and $190,371,968 expiring in 2011.
The Fund elected to defer to March 1, 2003 post-October losses of
$104,178,933.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the amortization of premiums and discounts. Non-cash
dividends, if any, are recorded at the fair market value of the securities
received. Dividends representing a return of capital are reflected as a
reduction of cost, when the amount of the return of capital is
conclusively determined. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. Investment
income, common expenses and realized and unrealized gains and losses are
allocated pro-rata among the classes of shares of the Fund based on the
relative net assets of each class. Shareholder service, 12b-1, and
administration fees, which are directly attributable to a class of shares,
are charged to that class' operations.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .33% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
22
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .22%
for Class II shares, .15% for Class III shares, .105% for Class IV shares,
.085% for Class V shares and .055% for Class VI shares.
Class M shares of the Fund pay GMO an administration fee monthly at the
annual rate of .20% of the average daily Class M net assets for support
services provided to Class M shareholders.
Fund Distributors, Inc. (the "Distributor") serves as the Fund's
distributor. Pursuant to a Rule 12b-1 distribution plan adopted by the
Fund, Class M shares of the Fund pay a fee, at the annual rate of .25% of
average daily Class M net assets for any activities or expenses primarily
intended to result in the sale of Class M shares of the Fund. This fee may
be spent by the Distributor on personal services rendered to Class M
shareholders of the Fund and/or maintenance of Class M shareholder
accounts.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees (Class II,
Class III, Class IV, Class V and Class VI only), administration fee (Class
M only), 12b-1 fee (Class M only), fees and expenses of the independent
Trustees of the Trust (including legal fees), brokerage commissions and
other investment-related costs, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses, interest expense and transfer taxes)
exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $20,302. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $975,724,916 and $824,802,389, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$3,101,371,702 $251,340,590 $(222,984,425) $28,356,165
</Table>
23
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
4. PRINCIPAL SHAREHOLDER
At August 31, 2003, 12.7% of the outstanding shares of the Fund were held
by one shareholder. Investment activities of this shareholder may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ ------------------------
Shares Amount Shares Amount
Class II: ---------- ------------ ---------- ------------
Shares sold 16,365,432 $181,033,594 13,418,875 $146,502,245
Shares issued to shareholders in reinvestment
of distributions 209,724 2,344,979 158,481 1,717,067
Shares repurchased (1,440,709) (15,412,455) (3,048,932) (32,236,841)
---------- ------------ ---------- ------------
Net increase 15,134,447 $167,966,118 10,528,424 $115,982,471
========== ============ ========== ============
</Table>
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
-------------------------- --------------------------
Shares Amount Shares Amount
Class III: ----------- ------------- ----------- -------------
Shares sold 23,974,142 $ 268,740,507 38,472,240 $ 437,495,310
Shares issued to shareholders in reinvestment
of distributions 837,950 9,323,886 1,078,206 11,858,975
Shares repurchased (14,060,839) (160,710,301) (27,621,256) (306,163,441)
----------- ------------- ----------- -------------
Net increase 10,751,253 $ 117,354,092 11,929,190 $ 143,190,844
=========== ============= =========== =============
</Table>
24
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
-------------------------- --------------------------
Shares Amount Shares Amount
Class IV: ----------- ------------- ----------- -------------
Shares sold 11,344,154 $ 114,250,000 30,894,720 $ 334,668,818
Shares issued to shareholders in reinvestment
of distributions 434,388 4,782,842 634,377 7,001,006
Shares repurchased (17,480,034) (195,754,729) (42,856,570) (467,800,441)
----------- ------------- ----------- -------------
Net decrease (5,701,492) $ (76,721,887) (11,327,473) $(126,130,617)
=========== ============= =========== =============
</Table>
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ ----------------------
Shares Amount Shares Amount
Class V: ---------- ------------ --------- -----------
Shares sold 679,001 $ 7,287,557 8,112,537 $84,103,316
Shares issued to shareholders in reinvestment
of distributions 349,762 3,846,380 519,722 5,681,255
Shares repurchased (7,096,231) (80,962,957) (416,143) (5,045,799)
---------- ------------ --------- -----------
Net increase (decrease) (6,067,468) $(69,829,020) 8,216,116 $84,738,772
========== ============ ========= ===========
</Table>
<Table>
<Caption>
Period from June 30, 2003
(commencement of
operations)
through August 31, 2003
(Unaudited)
--------------------------
Shares Amount
Class VI: ----------- -------------
Shares sold 10,816,881 $125,578,641
Shares issued to shareholders in reinvestment of
distributions 21,736 253,221
Shares repurchased (10,300) (120,000)
---------- ------------
Net increase 10,828,317 $125,711,862
========== ============
</Table>
25
<Page>
GMO U.S. CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Period from April 15, 2002
Six Months Ended (commencement of
August 31, 2003 operations)
(Unaudited) through February 28, 2003
------------------------ ----------------------------
Shares Amount Shares Amount
Class M: ---------- ------------ ------------ --------------
Shares sold 3,172,421 $ 32,469,745 14,124,184 $150,489,047
Shares issued to shareholders in reinvestment
of distributions 52,272 580,363 35,653 370,335
Shares repurchased (1,944,794) (19,605,337) (8,110,635) (83,278,247)
---------- ------------ ---------- ------------
Net increase 1,279,899 $ 13,444,771 6,049,202 $ 67,581,135
========== ============ ========== ============
</Table>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows.
FUTURES CONTRACTS
<Table>
<Caption>
Number of Contract Net Unrealized
Contracts Type Expiration Date Value Appreciation
--------- ------------------------- ------------------ -------------- --------------
Buys
498 S&P 500 September 2003 $125,458,650 $2,659,200
</Table>
At August 31, 2003 the Fund had sufficient cash and/or securities to cover
any commitments or margin requirements of the relevant broker or exchange.
26
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
COMMON STOCKS -- 96.5%
AUTO & TRANSPORTATION -- 1.2%
8,800 ArvinMeritor Inc 165,616
17,100 Expeditors International Washington Inc 644,841
49,600 Harley Davidson Inc 2,471,072
23,000 United Parcel Service, Class B 1,443,480
------------
4,725,009
------------
CONSUMER DISCRETIONARY -- 16.4%
25,000 Abercrombie & Fitch Co, Class A* 761,000
4,400 Advance Auto Parts* 328,460
57,700 Amazon.com Inc* 2,679,588
18,900 American Eagle Outfitters Inc* 324,324
494,000 AOL Time Warner Inc* 8,081,840
35,900 Apollo Group Inc* 2,300,113
39,800 Applebees International Inc 1,279,172
9,300 Autozone Inc* 853,740
20,900 Bed, Bath & Beyond Inc* 899,327
15,800 Best Buy Co Inc* 821,758
16,200 BJ's Wholesale Club Inc* 353,808
36,200 Callaway Golf Co 544,086
14,800 Career Education Corp* 667,924
24,100 Catalina Marketing Corp* 335,231
10,900 CBRL Group Inc 380,192
19,800 CDW Corp* 1,021,878
54,300 Cendant Corp* 976,314
27,200 Clear Channel Communications Inc* 1,227,264
25,600 Coach Inc* 1,485,824
14,800 Columbia Sportswear Co* 754,800
19,300 Convergys Corp* 347,400
13,300 Corinthian Colleges Inc* 765,415
31,800 Dollar Tree Stores Inc* 1,247,514
124,400 eBay Inc* 6,907,932
48,500 EchoStar Communications Corp* 1,789,650
15,100 Electronic Arts Inc* 1,355,225
52,500 Fox Entertainment Group Inc, Class A* 1,657,950
20,200 G TECH Holdings Corp 856,076
99,600 Gap Inc 2,080,644
8,000 Getty Images Inc* 326,400
206,600 Home Depot Inc 6,644,256
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
78,800 International Game Technology* 2,036,192
23,100 Jones Apparel Group Inc 713,559
18,300 Kimberly-Clark Corp 935,313
80,800 Liberty Media Corp, Series A* 977,680
18,880 Limited Brands 320,205
28,100 Lowe's Cos Inc 1,541,566
6,300 Mohawk Industries Inc* 459,648
15,500 Oakley Inc* 168,795
11,200 Outback Steakhouse Inc 432,880
6,800 PF Chang's China Bistro Inc* 316,200
4,400 Rent-A-Center Inc* 353,628
16,900 Ross Stores Inc 851,422
54,600 Service Corp International* 218,400
26,100 Staples Inc* 642,843
109,300 VeriSign Inc* 1,636,221
23,500 Wal Mart Stores Inc 1,390,495
1,600 Washington Post Co 1,113,648
57,000 Yahoo! Inc* 1,903,800
------------
66,067,600
------------
CONSUMER STAPLES -- 5.3%
207,184 Altria Group Inc 8,540,124
9,900 Coca Cola Enterprises Inc 183,051
450 Dean Foods Co* 13,072
5,400 Hershey Foods Corp 377,460
42,600 PepsiCo Inc 1,897,404
88,200 Procter and Gamble Co 7,698,978
98,326 Safeway Inc* 2,400,138
11,100 Sara Lee Corp 210,678
------------
21,320,905
------------
FINANCIAL SERVICES -- 10.3%
105,800 Americredit* 1,135,234
15,600 Bank of America Corp 1,236,300
48,300 Capital One Financial Corp 2,579,220
56,400 Checkfree Corp* 1,296,072
19,000 Countrywide Financial Corp 1,289,150
8,100 Factset Research Systems Inc 393,255
213,400 Fannie Mae 13,826,186
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
12,400 First Bancorp Puerto Rico 380,804
21,900 First Data Corp 840,960
122,100 Freddie Mac 6,489,615
4,400 General Growth Properties, REIT 305,140
37,300 J.P. Morgan Chase & Co 1,276,406
41,200 Janus Capital Group Inc 711,524
7,500 Marsh & McLennan Cos Inc 375,000
87,400 MBNA Corp 2,039,916
8,700 National Processing Inc* 179,916
20,033 New York Community Bancorp Inc 616,215
17,500 Popular Inc 659,400
10,200 Principal Financial Group 320,892
18,300 Progressive Corp 1,294,542
3,100 Provident Financial Group 82,801
109,800 Providian Financial Corp* 1,125,450
29,000 SEI Investments Co 1,012,100
13,800 Simon Property Group Inc, REIT 589,398
15,300 SLM Corp 614,754
3,900 Total System Services Inc 98,436
14,200 W Holding Co Inc 250,488
12,000 Wells Fargo & Co 601,680
------------
41,620,854
------------
HEALTH CARE -- 29.9%
25,000 Abbott Laboratories 1,007,500
11,500 AdvancePCS* 462,070
24,500 American Pharmaceutical Partners Inc* 1,167,180
15,900 AmerisourceBergen Corp 925,539
234,500 Amgen Inc* 15,453,550
17,100 Anthem Inc* 1,251,720
12,300 Barr Laboratories Inc* 832,341
20,800 Baxter International Inc 584,480
10,500 Becton Dickinson & Co 383,670
50,100 Boston Scientific Corp* 3,011,010
294,200 Bristol Myers Squibb Co 7,463,854
23,400 Celgene Corp* 900,666
18,100 Chiron Corp* 919,842
15,800 Covance Inc* 329,430
14,500 Coventry Health Care Inc* 680,630
67,800 Forest Laboratories Inc* 3,186,600
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
64,600 Genentech Inc* 5,129,240
53,800 Genzyme Corp - General Division* 2,536,670
11,300 Gilead Sciences Inc* 753,710
58,000 Guidant Corp 2,911,600
16,700 Health Net Inc* 531,561
37,500 ICN Pharmaceuticals Inc 656,250
6,300 IDEXX Laboratories Inc* 262,143
16,500 Invitrogen Corp* 951,555
48,800 Ivax Corp* 966,240
70,964 Johnson & Johnson 3,518,395
55,900 King Pharmaceuticals Inc* 785,395
20,500 Lilly (Eli) & Co 1,363,865
39,200 Lincare Holdings Inc* 1,357,496
40,401 Medco Health Solutions Inc* 1,078,707
39,900 Medimmune Inc* 1,391,313
335,000 Merck & Co Inc 16,857,200
10,600 Mid Atlantic Medical Services Inc* 520,036
52,800 Mylan Laboratories Inc 1,921,920
610,276 Pfizer Inc 18,259,458
23,600 Pharmaceutical Resources Inc* 1,320,184
2,000 Renal Care Group Inc* 72,620
9,300 ResMed Inc* 402,690
302,800 Schering Plough Corp 4,599,532
18,600 St Jude Medical Inc* 968,502
8,900 Stericycle Inc* 427,111
21,200 Steris Corp* 496,504
41,200 Stryker Corp 3,122,960
16,800 Tenet Healthcare Corp* 269,640
56,900 UnitedHealth Group Inc 2,812,567
9,700 Varian Medical Systems Inc* 541,745
41,200 Watson Pharmaceutical Inc* 1,693,320
13,300 WellPoint Health Networks Inc* 1,037,400
44,000 Zimmer Holdings Inc* 2,276,560
------------
120,354,171
------------
INTEGRATED OILS -- 0.9%
94,900 Exxon Mobil Corp 3,577,730
------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 0.2%
14,100 Sealed Air Corp* 686,106
------------
OTHER -- 1.1%
114,300 General Electric Co 3,379,851
35,100 Honeywell International Inc 1,017,549
------------
4,397,400
------------
OTHER ENERGY -- 1.0%
13,400 Burlington Resources Inc 648,828
138,600 Calpine Corp* 781,704
51,000 Chesapeake Energy Corp 552,840
8,100 Enron Corp*(a) 413
81,600 Halliburton Co 1,973,088
4,900 Pogo Producing Co 225,204
------------
4,182,077
------------
PRODUCER DURABLES -- 0.4%
17,200 DR Horton Inc 535,264
6,500 Lennar Corp 437,125
700 NVR Inc* 303,450
13,600 Waters Corp* 414,800
------------
1,690,639
------------
TECHNOLOGY -- 24.1%
27,900 Adaptec Inc* 203,949
11,500 Applera Corp-Applied Biosystems Group 250,240
900 Autodesk Inc 16,110
41,700 BEA Systems Inc* 565,035
89,700 BMC Software Inc* 1,316,796
42,200 Cadence Design Systems Inc* 600,084
120,200 Ciena Corp* 781,300
783,500 Cisco Systems Inc* 15,004,025
59,300 Citrix Systems Inc* 1,220,987
72,300 Computer Associates International Inc 1,853,049
174,200 Compuware Corp* 1,036,490
37,000 Comverse Technology Inc* 610,130
274,100 Corning Inc* 2,261,325
49,200 Cree Inc* 778,344
46,600 Dell Corp* 1,520,558
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
34,200 Electronic Data Systems Corp 746,586
361,100 EMC Corp* 4,604,025
26,000 Foundry Networks Inc* 505,700
42,400 Gateway Inc* 244,648
133,600 IBM Corp 10,956,536
22,100 Ingram Micro Inc, Class A* 312,715
466,908 Intel Corp 13,362,907
97,000 Juniper Networks Inc* 1,670,340
39,900 Linear Technology Corp 1,644,678
338,200 Microsoft Corp 8,969,064
41,200 NetScreen Technologies Inc* 985,916
1,203,200 Oracle Corp* 15,376,896
201 Peoplesoft Inc* 3,638
2,200 Procurenet*(b) 0
133,600 Qualcomm Inc 5,515,008
165,800 Sanmina-SCI Corp* 1,488,884
96,000 Solectron Corp* 569,280
146,100 Tellabs Inc* 954,033
35,600 Texas Instruments Inc 849,060
------------
96,778,336
------------
UTILITIES -- 5.7%
152,600 AES Corp* 988,848
423,600 AT&T Wireless Services Inc* 3,651,432
32,600 Cablevision Systems Corp, Class A* 656,890
82,200 Citizens Communications Co* 937,080
118,200 Comcast Corp, Special Class A* 3,352,152
41,600 Cox Communications Inc, Class A* 1,361,152
17,300 Energen Corp 617,264
282,400 Nextel Communications Inc* 5,444,672
26,100 PPL Corp 1,035,387
160,600 Qwest Communications International Inc* 714,670
37,500 SBC Communications Inc 843,375
140,100 Sprint Corp (Fon Group) 2,069,277
23,000 UGI Corp 702,650
27,000 Xcel Energy Inc 395,550
------------
22,770,399
------------
TOTAL COMMON STOCKS (COST $350,135,467) 388,171,226
------------
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 7.1%
CASH EQUIVALENTS -- 3.7%
3,480,508 Dreyfus Money Market Fund(c) 3,480,508
$ 8,138,457 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.05%, due 9/29/03(c) 8,138,457
3,357,113 Merrimac Money Market Fund(c) 3,357,113
------------
14,976,078
------------
U.S. GOVERNMENT -- 0.3%
$ 1,000,000 U.S. Treasury Bill, 0.93%, due 10/23/03(d) 998,350
------------
REPURCHASE AGREEMENTS -- 3.1%
$ 12,473,928 Citigroup Global Markets Repurchase Agreement, dated
08/29/03, due 09/02/03, with a maturity value of
$12,474,898, and an effective yield of 0.70%,
collateralized by a U.S. Treasury Bill with a rate of
1.175%, maturity date of 09/25/03, and a market value
of $12,831,912. 12,473,928
------------
TOTAL SHORT-TERM INVESTMENTS (COST $28,448,356) 28,448,356
------------
TOTAL INVESTMENTS -- 103.6%
(Cost $378,583,823) 416,619,582
Other Assets and Liabilities (net) -- (3.6%) (14,538,722)
------------
TOTAL NET ASSETS -- 100.0% $402,080,860
============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</Table>
REIT Real Estate Investment Trust
* Non-income producing security.
(a) Bankrupt issuer.
(b) Security valued at fair value using methods determined in good faith by
or at the direction of the Trustees (Note 1).
(c) Represents investment of security lending collateral (Note 1).
(d) All or a portion of this security has been segregated to cover margin
requirements on open financial futures contracts (Note 6).
See accompanying notes to the financial statements. 7
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$14,451,663 (cost $378,583,823) (Note 1) $416,619,582
Receivable for Fund shares sold 371,322
Dividends and interest receivable 232,561
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 50,375
Receivable for expenses reimbursed by Manager (Note 2) 18,693
------------
Total assets 417,292,533
------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 14,976,078
Payable for Fund shares repurchased 1,394
Payable to affiliate for (Note 2):
Management fee 109,186
Shareholder service fee 40,387
12b-1 fee - Class M 30,977
Administration fee - Class M 12,324
Accrued expenses 41,327
------------
Total liabilities 15,211,673
------------
NET ASSETS $402,080,860
============
NET ASSETS CONSIST OF:
Paid-in capital $403,106,783
Accumulated undistributed net investment income 263,546
Accumulated net realized loss (39,587,021)
Net unrealized appreciation 38,297,552
------------
$402,080,860
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $326,782,494
============
Class M shares $ 75,298,366
============
SHARES OUTSTANDING:
Class III 19,235,520
============
Class M 4,446,075
============
NET ASSET VALUE PER SHARE:
Class III $ 16.99
============
Class M $ 16.94
============
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $1,146) $ 2,155,413
Interest (including securities lending income of $9,907) 33,768
-----------
Total income 2,189,181
-----------
EXPENSES:
Management fee (Note 2) 640,581
Custodian and transfer agent fees 53,371
Audit fees 19,688
Registration fees 19,044
Legal fees 7,268
Trustees fees and related expenses (Note 2) 4,014
Miscellaneous 3,128
Fees reimbursed by Manager (Note 2) (102,499)
-----------
644,595
Shareholder service fee (Note 2) - Class III 241,521
-----------
12b-1 fee (Note 2) - Class M 82,754
-----------
Administration fee (Note 2) - Class M 66,203
-----------
Net expenses 1,035,073
-----------
Net investment income 1,154,108
-----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 5,342,560
Closed futures contracts 1,564,716
-----------
Net realized gain 6,907,276
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 61,598,687
Open futures contracts 261,627
-----------
Net unrealized gain 61,860,314
-----------
Net realized and unrealized gain 68,767,590
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $69,921,698
===========
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,154,108 $ 994,016
Net realized gain (loss) 6,907,276 (13,874,093)
Change in net unrealized appreciation (depreciation) 61,860,314 (17,285,444)
------------ ------------
Net increase (decrease) in net assets from
operations 69,921,698 (30,165,521)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (1,076,958) (676,350)
Class M (174,034) (53,573)
------------ ------------
Total distributions from net investment income (1,250,992) (729,923)
------------ ------------
(1,250,992) (729,923)
------------ ------------
Net share transactions (Note 5):
Class III (30,903,780) 216,475,101
Class M 41,956,980 20,471,432
------------ ------------
Increase in net assets resulting from net share
transactions 11,053,200 236,946,533
------------ ------------
Total increase in net assets 79,723,906 206,051,089
NET ASSETS:
Beginning of period 322,356,954 116,305,865
------------ ------------
End of period (including accumulated undistributed
net investment income of $263,546 and $360,430,
respectively) $402,080,860 $322,356,954
============ ============
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------
(UNAUDITED) 2003 2002 2001* 2000* 1999*
---------------- ----------- ----------- --------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.29 $ 18.23 $ 21.19 $ 54.45 $ 45.54 $ 48.18
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.06 0.10 0.10 0.14 0.22 0.33
Net realized and unrealized gain
(loss) 2.69 (3.94) (2.97) (10.78) 18.84 9.79
-------- -------- -------- -------- -------- --------
Total from investment operations 2.75 (3.84) (2.87) (10.64) 19.06 10.12
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.05) (0.10) (0.09) (0.15) (0.26) (0.33)
From net realized gains -- -- -- (22.47) (9.89) (12.43)
-------- -------- -------- -------- -------- --------
Total distributions (0.05) (0.10) (0.09) (22.62) (10.15) (12.76)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 16.99 $ 14.29 $ 18.23 $ 21.19 $ 54.45 $ 45.54
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) 19.30%++ (21.13)% (13.57)% (25.76)% 45.24% 22.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $326,782 $302,051 $116,306 $114,988 $204,662 $158,084
Net expenses to average daily net
assets 0.48%** 0.48% 0.48% 0.48% 0.48% 0.48%
Net investment income to average
daily net assets 0.66%** 0.72% 0.54% 0.27% 0.50% 0.64%
Portfolio turnover rate 50%++ 72% 101% 111% 48% 50%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.05%** 0.09% 0.07% 0.07% 0.06% 0.23%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
* Amounts were restated to reflect a 1:11 reverse stock split effective
March 16, 2001.
** Annualized.
++ Not Annualized.
See accompanying notes to the financial statements. 11
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS M SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
SEPTEMBER 11, 2002
SIX MONTHS ENDED (COMMENCEMENT
AUGUST 31, 2003 OF OPERATIONS) THROUGH
(UNAUDITED) FEBRUARY 28, 2003
---------------- ----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.25 $ 15.27
------- -------
Income from investment operations:
Net investment income 0.03 0.04
Net realized and unrealized gain (loss) 2.70 (1.01)
------- -------
Total from investment operations 2.73 (0.97)
------- -------
Less distributions to shareholders:
From net investment income (0.04) (0.05)
------- -------
Total distributions (0.04) (0.05)
------- -------
NET ASSET VALUE, END OF PERIOD $ 16.94 $ 14.25
======= =======
TOTAL RETURN(a) 19.18%++ (6.31)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $75,298 $20,306
Net expenses to average daily net assets 0.78%* 0.78%*
Net investment income to average daily net assets 0.27%* 0.51%*
Portfolio turnover rate 50%++ 72%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.05%* 0.09%*
</Table>
(a) The total return would have been lower had certain expenses not been
reimbursed during the period shown.
* Annualized.
++ Not Annualized.
12 See accompanying notes to the financial statements.
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Growth Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended,
as an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24,
1985. The Declaration of Trust permits the Trustees to create an unlimited
number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series of shares into classes.
The Fund seeks long-term growth of capital. The Fund's benchmark is the
Russell 1000 Growth Index.
Throughout the six months ended August 31, 2003, the Fund had two classes
of shares outstanding: Class III and Class M. Class M shares bear an
administrative fee and a 12b-1 fee, while Class III shares bear a
shareholder service fee (See Note 2). The principal economic difference
between the classes of shares is the level of fees borne by the classes.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates fair value. Shares of mutual funds are
valued at their net asset value as reported on each business day.
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.
13
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for
all open futures contracts as of August 31, 2003.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and
14
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 the price
of the security or index underlying these transactions. As of August 31,
2003, the Fund held no open swap agreements.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
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 investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund loaned securities having a market
value of $14,451,663 collateralized by cash in the amount of $14,976,078
which was invested in short-term instruments.
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.
15
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions are paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash
distributions. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code, of $29,677,991 expiring in 2010 and $10,843,791 expiring in 2011.
The Fund elected to defer to March 1, 2003 post-October losses of
$2,756,582.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the amortization of premiums and discounts. Non-cash
dividends, if any, are recorded at the fair market value of the securities
received. Dividends representing a return of capital are reflected as a
reduction of cost, when the amount of the return of capital is
conclusively determined. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. Investment
income, common expenses and realized and unrealized gains and losses are
allocated pro-rata among the classes of shares of the Fund based on the
relative net assets of each class. Shareholder service, 12b-1, and
administration fees, which are directly attributable to a class of shares,
are charged to that class' operations.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .33% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder
16
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Service Plan, the shareholder service
fee is calculated based on the average daily net assets at the annual rate
of .15% for Class III shares.
Class M shares of the Fund pay GMO an administration fee monthly at the
annual rate of .20% of the average daily Class M net assets for support
services provided to Class M shareholders.
Fund Distributors, Inc. (the "Distributor") serves as the Fund's
distributor. Pursuant to a Rule 12b-1 distribution plan adopted by the
Fund, Class M shares of the Fund pay a fee, at the annual rate of .25% of
average daily Class M net assets for any activities or expenses primarily
intended to result in the sale of Class M shares of the Fund. This fee may
be spent by the Distributor on personal services rendered to Class M
shareholders of the Fund and/or maintenance of Class M shareholder
accounts.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees (Class III
only), administration fee (Class M only), 12b-1 fee (Class M only), fees
and expenses of the independent Trustees of the Trust (including legal
fees), brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $3,094. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $190,213,236 and $185,444,561, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$381,034,818 $46,484,228 $(10,899,464) $35,584,764
</Table>
17
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 71.0% of the outstanding shares of the Fund were held
by five shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
-------------------------- ---------------------------
Shares Amount Shares Amount
Class III: ----------- ------------- ------------ -------------
Shares sold 458,440 $ 7,504,457 15,300,314 $224,944,617
Shares issued to shareholders in reinvestment
of distributions 52,494 835,367 35,730 556,653
Shares repurchased (2,415,589) (39,243,604) (574,513) (9,026,169)
---------- ------------ ----------- ------------
Net increase (decrease) (1,904,655) $(30,903,780) 14,761,531 $216,475,101
========== ============ =========== ============
</Table>
<Table>
<Caption>
Period from
Six Months Ended September 11, 2002
August 31, 2003 (commencement of
(Unaudited) operations)
-------------------------- --------------------------
Shares Amount Shares Amount
Class M: ----------- ------------- ----------- -------------
Shares sold 3,345,748 $47,012,866 1,537,897 $22,128,809
Shares issued to shareholders in reinvestment
of distributions 11,072 174,034 3,862 53,573
Shares repurchased (335,673) (5,229,920) (116,831) (1,710,950)
---------- ----------- ---------- -----------
Net increase 3,021,147 $41,956,980 1,424,928 $20,471,432
========== =========== ========== ===========
</Table>
18
<Page>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FUTURES CONTRACTS
<Table>
<Caption>
Number of Contract
Contracts Type Expiration Date Value
--------- --------------------------------------------- --------------------------------------------- -----------
Buys
31 S&P 500 September 2003 $7,809,675
<Caption>
Number of Net Unrealized
Contracts Appreciation
--------- --------------
Buys
31 $261,793
========
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
19
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(FORMERLY GMO SHORT-TERM INCOME FUND)
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 14.6%
U.S. GOVERNMENT -- 6.7%
2,800,000 U.S. Treasury Inflation Indexed Note, 3.88%, due
01/15/09 3,129,000
-------------
U.S. GOVERNMENT AGENCY -- 7.9%
221,667 Agency for International Development Floater (Support
of Botswana),Variable Rate, 6 mo. U.S. Treasury Bill
+ .40%, 1.46%, due 10/01/12 217,511
1,425,825 Agency for International Development Floater (Support
of C.A.B.E.I.),Variable Rate, 6 mo. U.S. Treasury
Bill + .40%, 1.46%, due 10/01/12 1,397,309
1,418,767 Agency for International Development Floater (Support
of Honduras),Variable Rate, 3 mo. U.S. Treasury Bill
x 117%, 1.06%, due 10/01/11 1,408,126
65,985 Agency for International Development Floater (Support
of Peru), Series A, Variable Rate, 6 mo. U.S.
Treasury Bill +.35, 1.41%, due 05/01/14 65,655
631,967 Small Business Administration Pool #502320,Variable
Rate, Prime - 2.18%, 1.81%, due 08/25/18 633,863
-------------
3,722,464
-------------
TOTAL DEBT OBLIGATIONS (COST $6,766,348) 6,851,464
-------------
MUTUAL FUNDS -- 85.1%
1,220,786 GMO Short-Duration Collateral Fund 30,776,008
380,142 GMO Alpha LIBOR Fund 9,184,227
-------------
TOTAL MUTUAL FUNDS (COST $40,255,959) 39,960,235
-------------
TOTAL INVESTMENTS -- 99.7%
(Cost $47,022,307) 46,811,699
Other Assets and Liabilities (net) -- 0.3% 128,439
-------------
TOTAL NET ASSETS -- 100.0% $ 46,940,138
=============
</Table>
<Table>
Variable rates - The rates shown on variable rate notes are the
current interest rates at August 31, 2003, which are subject
to change based on the terms of the security.
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $47,022,307) (Note 1) $46,811,699
Cash 112,402
Receivable for investments sold 3,073
Interest receivable 36,290
Receivable for expenses reimbursed by Manager (Note 2) 3,720
-----------
Total assets 46,967,184
-----------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 1,986
Shareholder service fee 5,958
Accrued expenses 19,102
-----------
Total liabilities 27,046
-----------
NET ASSETS $46,940,138
===========
NET ASSETS CONSIST OF:
Paid-in capital $47,510,692
Accumulated undistributed net investment income 58,291
Accumulated net realized loss (418,237)
Net unrealized depreciation (210,608)
-----------
$46,940,138
===========
SHARES OUTSTANDING 5,357,662
===========
NET ASSET VALUE PER SHARE $ 8.76
===========
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends from investment company shares $ 117,617
Interest 62,369
---------
Total income 179,986
---------
EXPENSES:
Management fee (Note 2) 12,074
Audit fees 13,524
Custodian and transfer agent fees 4,271
Registration fees 2,576
Trustees fees and related expenses (Note 2) 2,323
Legal fees 1,104
Miscellaneous 460
Fees reimbursed by Manager (Note 2) (21,935)
---------
14,397
Shareholder service fee 36,223
---------
Net expenses 50,620
---------
Net investment income 129,366
---------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on investments (112,513)
---------
Change in net unrealized appreciation (depreciation)
on investments 507,077
---------
Net realized and unrealized gain 394,564
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 523,930
=========
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 129,366 $ 474,944
Net realized loss (112,513) (3,505,670)
Change in net unrealized appreciation (depreciation) 507,077 (405,617)
----------- ------------
Net increase (decrease) in net assets from
operations 523,930 (3,436,343)
----------- ------------
Distributions to shareholders from:
Net investment income (71,075) (2,325,404)
Net realized gains -- (786,056)
----------- ------------
(71,075) (3,111,460)
----------- ------------
FUND SHARE TRANSACTIONS: (NOTE 5)
Proceeds from sale of shares -- 47,278,043
Net asset value of shares issued to shareholders in
payment of distributions declared 70,015 3,079,622
Cost of shares repurchased (8,898,329) (36,841,075)
----------- ------------
Net increase (decrease) in net assets resulting from
Fund share transactions (8,828,314) 13,516,590
----------- ------------
Total increase (decrease) in net assets (8,375,459) 6,968,787
NET ASSETS:
Beginning of period 55,315,597 48,346,810
----------- ------------
End of period (including accumulated undistributed
net investment income of $58,291 and $0,
respectively) $46,940,138 $ 55,315,597
=========== ============
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.68 $ 9.62 $ 9.92 $ 9.62 $ 9.63 $ 9.81
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.02(b)+ 0.08(b)+ 0.30(b)+ 0.42(b)+ 0.46(b)+ 0.57
Net realized and unrealized gain
(loss) 0.07 (0.54) 0.07 0.33 0.05 (0.16)
------- ------- ------- ------- ------- -------
Total from investment operations 0.09 (0.46) 0.37 0.75 0.51 0.41
------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.01) (0.33) (0.39) (0.44) (0.52) (0.59)
From net realized gains -- (0.15) (0.28) (0.01) -- --
------- ------- ------- ------- ------- -------
Total distributions (0.01) (0.48) (0.67) (0.45) (0.52) (0.59)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 8.76 $ 8.68 $ 9.62 $ 9.92 $ 9.62 $ 9.63
======= ======= ======= ======= ======= =======
TOTAL RETURN(a) 1.07%** (4.91)% 3.73% 7.91% 5.42% 4.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $46,940 $55,316 $48,347 $40,505 $43,491 $53,387
Net expenses to average daily net
assets 0.21%(c)* 0.21%(c) 0.20%(c) 0.20%(c) 0.20%(c) 0.20%
Net investment income to average
daily net assets 0.54%(b)* 0.88%(b) 3.04%(b) 4.30%(b) 4.82%(b) 5.50%
Portfolio turnover rate 3%** 43% 91% 50% 178% 76%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.09%* 0.08% 0.12% 0.09% 0.08% 0.32%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) Net investment income for the period ended August 31, 2003 and the years
ended February 28/29, 2003, 2002, 2001 and 2000 are affected by the
timing of the declaration of dividends by other GMO Funds in which the
Fund invests.
(c) Net expenses exclude expenses incurred indirectly through investment in
underlying funds (See Note 1).
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
See accompanying notes to the financial statements. 5
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Short-Duration Investment Fund (the "Fund") (formerly, GMO Short-Term
Income 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 is not
currently accepting purchase orders for Fund shares.
The Fund seeks to provide current income through investment in a portfolio
of high-quality fixed income instruments. The Fund's benchmark is the
Citigroup (f/k/a Salomon Smith Barney) 3-Month Treasury Bill Index.
At August 31, 2003, 19.6% of the Fund was invested in the GMO Alpha LIBOR
Fund and 65.5% of the Fund was invested in the GMO Short-Duration
Collateral Fund, separate funds of GMO Trust managed by GMO. Shares of the
GMO Alpha LIBOR Fund and the GMO Short-Duration Collateral Fund are not
publicly available for direct purchase. The financial statements of the
GMO Alpha LIBOR Fund and the GMO Short-Duration Collateral Fund should be
read in conjunction with the Fund's financial statements.
In November 2002, certain bonds ("NPF bonds") held by GMO Alpha LIBOR Fund
("Alpha LIBOR Fund"), in which the Fund had significant investments,
defaulted amid allegations of fraud and significant violations of the
bonds' indentures. Currently, no market exists for the NPF bonds, and they
are being valued at fair value by the trustees of GMO Trust or persons
acting at their direction. The devaluation of the NPF bonds had a negative
impact on the Fund's net asset value per share.
In late November 2002, Alpha LIBOR Fund undertook a reorganization
transaction with a new series of GMO Trust, GMO Short-Duration Collateral
Fund ("SDCF") and approximately 78% of the Fund's interest in Alpha LIBOR
Fund was transferred to SDCF in exchange for SDCF shares. The
reorganization was treated as a sale of the Alpha LIBOR Fund shares for
financial reporting purposes and a distribution by Alpha LIBOR Fund for
tax purposes. Accordingly, for financial reporting purposes, the Fund
recognized a loss on the sale of the Alpha LIBOR shares of approximately
$3,428,863. In addition, the Fund recognized for tax, but not for
financial reporting purposes, ordinary income of $1,852,605 and long-term
capital gains of $330,430 from Alpha LIBOR Fund. $5,611,898 was added to
the tax cost basis of the Fund's holdings of Alpha LIBOR Fund.
6
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost, which approximates fair value. Shares of other funds of
the Trust ("underlying funds") and other mutual funds are valued at their
net asset value as reported on each business day. 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.
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, or an underlying fund in which it
invests, were valued on the basis of a price provided by a principal
market maker. The prices provided by the principal market makers may
differ from the value that would be realized if the securities were sold
and the differences could be material to the financial statements.
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
7
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
securities to increase or decrease its exposure to different underlying
instruments and to gain exposure to markets that may be difficult to
invest in through conventional securities. Indexed securities may be more
volatile than their underlying instruments, but any loss is limited to the
amount of the original investment.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 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 quarterly, and from net realized short-term and long-term capital
gains 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.
8
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
The Fund elected to defer to March 1, 2003 post-October losses of
$104,643.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the amortization of
premiums and discounts. Dividend income is recorded on the ex-dividend
date. Non-cash dividends, if any, are recorded at the fair market value of
the securities received. Interest income on U.S. Treasury inflation
indexed securities is accrued daily based upon the inflation adjusted
principal. Additionally, any increase in the principal or face amount of
the securities adjusted for inflation is recorded as interest income. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. In
addition, the Fund will also incur certain fees and expenses indirectly as
a shareholder in the underlying funds. Because the underlying funds have
varied expense and fee levels and the Fund may own different proportions
of underlying funds at different times, the amount of fees and expenses
indirectly incurred by the Fund will vary. (See Note 2.)
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .05% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of the Fund at the annual rate of .15%.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage
9
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
commissions and other investment-related costs, hedging transaction fees,
extraordinary, non-recurring and certain other unusual expenses (including
taxes), securities lending fees and expenses, interest expense and
transfer taxes) exceed the management fee.
The Fund incurs fees and expenses indirectly as a shareholder in Alpha
LIBOR Fund and SDCF. For the six months ended August 31, 2003, indirect
operating expenses (excluding investment-related expenses) were .008% of
the Fund's average daily net assets, and indirect investment-related
expenses (including, but not limited to, interest expense, foreign audit
expense, and investment-related legal expense) were .009% of the Fund's
average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $2,139. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $1,217,617 and $9,525,017, respectively.
At August 31, 2003, the approximate 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
-------------- ---------------- ---------------- --------------
$51,600,899 $0 $(4,789,200) $(4,789,200)
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 53.7% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
10
<Page>
GMO SHORT-DURATION INVESTMENT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------ -----------------
Shares sold -- 4,944,849
Shares issued to shareholders in reinvestment of
distributions 8,026 344,459
Net increase (decrease) (1,023,931) (3,940,125)
-------------- --------------
(1,015,905) 1,349,183
Fund shares:
Beginning of period 6,373,567 5,024,384
-------------- --------------
End of period 5,357,662 6,373,567
============== ==============
</Table>
11
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
417,874 GMO Real Estate Fund, Class III 5,164,918
198,930 GMO Small Cap Growth Fund, Class III 3,763,765
559,152 GMO Small Cap Value Fund, Class III 7,179,511
2,795,549 GMO U.S. Core Fund, Class III 32,903,609
------------
TOTAL MUTUAL FUNDS (COST $47,046,892) 49,011,803
------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENTS -- 0.0%
$ 10,201 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due 9/02/03, with a a maturity value of
$10,202 and an effective yield of 0.70%, collaterized
by a U.S. Treasury Bill with a rate of 1.175%, maturity
date of 9/25/03 and market value of $10,775. 10,201
------------
TOTAL SHORT-TERM INVESTMENTS (COST $10,201) 10,201
------------
TOTAL INVESTMENTS -- 100.0%
(Cost $47,057,093) 49,022,004
Other Assets and Liabilities (net) -- (0.0%) (12,913)
------------
TOTAL NET ASSETS -- 100.0% $ 49,009,091
============
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $47,057,093) (Note 1) $49,022,004
Receivable for expenses reimbursed by Manager (Note 2) 20,678
-----------
Total assets 49,042,682
-----------
LIABILITIES:
Due to custodian 175
Payable to affiliate for (Note 2):
Management fee 12,384
Shareholder service fee 5,629
Accrued expenses 15,403
-----------
Total liabilities 33,591
-----------
NET ASSETS $49,009,091
===========
NET ASSETS CONSIST OF:
Paid-in capital $47,524,387
Accumulated undistributed net investment income 320,643
Accumulated net realized loss (800,850)
Net unrealized appreciation 1,964,911
-----------
$49,009,091
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $49,009,091
===========
SHARES OUTSTANDING:
Class III 8,948,825
===========
NET ASSET VALUE PER SHARE:
Class III $ 5.48
===========
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends from investment company shares $ 320,268
Interest 1,719
----------
Total income 321,987
----------
EXPENSES:
Management fee (Note 2) 39,342
Audit fees 10,304
Registration fees 2,300
Custodian and transfer agent fees 1,879
Legal fees 274
Trustees fees and related expenses (Note 2) 154
Miscellaneous 183
Fees reimbursed by Manager (Note 2) (14,943)
----------
39,493
Indirectly incurred fees waived or borne by Manager (Note
2) (39,339)
----------
154
----------
Shareholder service fee (Note 2) - Class III 17,883
Shareholder service fee waived (Note 2) - Class III (17,883)
----------
Net expenses 154
----------
Net investment income 321,833
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (601,962)
Realized gains distributions from investment company
shares 7,018
----------
Net realized loss on investments (594,944)
----------
Change in net unrealized appreciation (depreciation) on
investments 4,246,305
----------
Net realized and unrealized gain 3,651,361
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,973,194
==========
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 321,833 $ 127,210
Net realized gain (loss) (594,944) 531,618
Change in net unrealized appreciation (depreciation) 4,246,305 (2,256,923)
----------- -----------
Net increase (decrease) in net assets from
operations 3,973,194 (1,598,095)
----------- -----------
Distributions to shareholders from:
Net investment income
Class III (134,596) (6,056)
Net realized gains
Class III (560,818) --
----------- -----------
(695,414) (6,056)
----------- -----------
Net share transactions (Note 5):
Class III 32,586,979 14,478,433
----------- -----------
Net increase in net assets resulting from Fund share
transactions 32,586,979 14,478,433
----------- -----------
Total increase in net assets 35,864,759 12,874,282
NET ASSETS:
Beginning of period 13,144,332 270,050
----------- -----------
End of period (including accumulated undistributed
net investment income of $320,643 and $133,406,
respectively) $49,009,091 $13,144,332
=========== ===========
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 -------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ---------- ---------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 4.53 $ 5.45 $ 5.11 $ 4.84 $ 4.63 $ 8.53
------- ------- ------ ------ ------ -------
Income from investment operations:
Net investment income(a)+ 0.07 0.09 0.11 0.14 0.09 0.10
Net realized and unrealized gain
(loss) 0.98 (1.00) 0.39 0.35 0.54 0.27
------- ------- ------ ------ ------ -------
Total from investment operations 1.05 (0.91) 0.50 0.49 0.63 0.37
------- ------- ------ ------ ------ -------
Less distributions to shareholders:
From net investment income (0.02) (0.01) (0.16) (0.17) (0.23) (0.25)
From net realized gains (0.08) -- -- (0.05) (0.19) (4.02)
------- ------- ------ ------ ------ -------
Total distributions (0.10) (0.01) (0.16) (0.22) (0.42) (4.27)
------- ------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 5.48 $ 4.53 $ 5.45 $ 5.11 $ 4.84 $ 4.63
======= ======= ====== ====== ====== =======
TOTAL RETURN(b) 23.06%** (16.78)% 9.80% 10.14% 13.35% 3.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $49,009 $13,144 $ 270 $ 253 $1,602 $16,830
Net expenses to average daily net
assets(d) 0.00%*(c) 0.02% 0.00%(c) 0.00% 0.00% 0.00%
Net investment income to average
daily net assets(a) 2.70%* 1.93% 1.99% 2.71% 1.85% 1.51%
Portfolio turnover rate 5%** 24% 2% 35% 22% 16%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.61%* 0.88% 8.97% 3.05% 0.52% 0.57%
Purchase and redemption fees
consisted of the following per
share amounts: $0.00(e) -- -- -- -- --
</Table>
(a) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the Fund
invests.
(b) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown. Calculation excludes purchase
premiums and redemption fees.
(c) Net expenses were less than 0.01%.
(d) Net expenses exclude expenses incurred indirectly through investments in
underlying funds. (See Note 1)
(e) Purchase and redemption fees were less than $0.01.
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
See accompanying notes to the financial statements. 5
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO U.S. Sector Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks total return greater than that of the
Russell 3000 Index through investment in common stocks, either directly or
through investment in shares of other Funds of the Trust. The Fund invests
in Class III shares of other Funds of the Trust. The financial statements
of the underlying funds should be read in conjunction with the Fund's
financial statements.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Shares of the underlying funds 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.
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.
Securities held by the underlying funds 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.
6
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Certain investments in securities held by the underlying funds were valued
on the basis of a price provided by a principal market maker. The prices
provided by the principal market makers may differ from the value that
would be realized if the securities were sold and the differences could be
material to the financial statements.
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 or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. Distributions in excess of tax basis earnings and profits, if
any, are reported in the Fund's financial statements as a return of
capital.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code, of $55,779 and $97,318 expiring in 2009 and 2011, respectively.
7
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Income dividends
and capital gain distributions from underlying funds are recorded on the
ex-dividend date. Dividend income is recorded on the ex-dividend date.
Non-cash dividends, if any, are recorded at the fair market value of the
securities received. Interest income is recorded on the accrual basis.
Dividends representing a return of capital are reflected as a reduction of
cost. In determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. In
addition, the Fund will also incur certain fees and expenses indirectly as
a shareholder in the underlying funds. Because the underlying funds have
varied expense and fee levels and the Fund may own different proportions
of underlying funds at different times, the amount of fees and expenses
indirectly incurred by the Fund will vary. (See Note 2.)
PURCHASES AND REDEMPTIONS OF FUND SHARES
Effective June 30, 2003, the Fund began to charge purchase premiums and
redemption fees of Fund shares. The premiums on cash purchases and fees on
redemption of Fund shares is 0.15% of the amount invested or redeemed. The
redemption fee is only applicable to shares purchased on or after
June 30, 2003. If the Manager determines that any portion of a cash
purchase or redemption is offset by a corresponding cash redemption or
purchase occurring on the same day, the purchase premium or redemption fee
charged by the Fund will be reduced by 100% with respect to that portion.
In addition, the purchase premium or redemption fee charged by the Fund
may be waived if the Manager determines the Fund is either substantially
overweighted or underweighted in cash so that a redemption or purchase
will not require a securities transaction. All purchase premiums and
redemption fees are paid to and recorded by the Fund as paid-in capital.
For the six months ended August 31, 2003, the Fund received $18,302 in
purchase premiums. There is no premium for reinvested distributions.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .33% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on average daily net assets at the annual rate of .15% for Class III
shares. The Fund will invest in Class III shares of each underlying Fund
being offered. Like the management fee (as described below), the
shareholder
8
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
service fee will be waived (but not below zero) to the extent of the
indirect shareholder service fees paid in connection with the Fund's
investment in shares of underlying Funds. For the six months ended
August 31, 2003, the shareholder service fees incurred indirectly by the
Fund were .150% of the Fund's average daily net assets.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, and the
following expenses: fees and expenses of the independent trustees of the
Trust (including legal fees), brokerage commissions and other
investment-related costs, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses, interest expenses and transfer taxes
("fund expenses")) plus the amount of fees and expenses, excluding
shareholder service fees, and fund expenses (as defined above), incurred
indirectly by the Fund through investment in underlying Funds, exceed the
management fee. Because GMO will not reimburse expenses incurred
indirectly to the extent they exceed .33% of the Fund's average daily net
assets, and because the amount of fees and expenses incurred indirectly by
the Fund will vary, the operating expenses (excluding shareholder service
fees and fund expenses) and investment-related expenses incurred
indirectly by the Fund through investment in underlying Funds may exceed
.33% of the Fund's average daily net assets. For the six months ended
August 31, 2003, operating expenses (excluding shareholder service fees)
incurred indirectly by the Fund were .340% of the Fund's average daily net
assets, and the Fund did not incur any indirect investment-related
expenses (including, but not limited to, interest expense, foreign audit
expense, and investment-related legal expense).
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2003 was $152. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $33,581,286 and $1,359,000, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$47,349,866 $1,672,138 $ -- $1,672,138
</Table>
9
<Page>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 88.7% of the outstanding shares of the Fund were held
by five shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
---------------------- ----------------------
Shares Amount Shares Amount
Class III: --------- ----------- --------- -----------
Shares sold 5,999,878 $32,341,565 2,852,744 $14,472,377
Shares issued to shareholders in
reinvestment of distributions 129,259 695,414 1,214 6,056
Shares repurchased (83,799) (450,000) -- --
--------- ----------- --------- -----------
Net increase 6,045,338 $32,586,979 2,853,958 $14,478,433
========= =========== ========= ===========
</Table>
10
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
COMMON STOCKS -- 95.6%
AUTO & TRANSPORTATION -- 1.9%
4,800 Airtran Holdings Inc* 64,464
2,400 American Axle & Manufacturing Holdings Inc* 78,000
3,400 ArvinMeritor Inc 63,988
6,200 Atlantic Coast Airlines Holdings* 49,538
4,300 Coachmen Industries Inc 56,201
5,300 EGL Inc* 93,916
1,400 Landstar System Inc* 86,394
1,500 Superior Industries International Inc 64,905
1,400 Thor Industries Inc 75,866
1,900 Tidewater Inc 54,568
------------
687,840
------------
CONSUMER DISCRETIONARY -- 26.3%
5,500 Abercrombie & Fitch Co, Class A* 167,420
3,100 Advance Auto Parts* 231,415
5,100 Aeropostale Inc* 143,157
5,900 American Eagle Outfitters Inc* 101,244
1,400 American Woodmark Corp 71,316
6,650 Applebees International Inc 213,731
1,800 Ask Jeeves Inc* 32,778
5,200 Bally Total Fitness Holding Corp* 50,336
3,900 Bebe Stores Inc* 89,934
920 Benihana Inc* 11,390
4,400 BJ's Wholesale Club Inc* 96,096
3,200 Blyth Inc 89,856
1,500 Bob Evans Farms Inc 40,545
1,700 Boyd Gaming Corp 26,095
4,500 Callaway Golf Co 67,635
6,400 Career Education Corp* 288,832
3,900 Catalina Marketing Corp* 54,249
4,100 CBRL Group Inc 143,008
2,500 Central Garden and Pet Co* 69,575
5,850 Chicos FAS Inc* 190,066
3,400 Children's Place* 70,584
2,200 Choice Hotels International Inc* 71,500
6,000 Claire's Stores Inc 207,300
8,500 CNET Networks Inc* 71,570
6,100 Coach Inc* 354,044
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
3,600 Columbia Sportswear Co* 183,600
3,900 Corinthian Colleges Inc* 224,445
2,700 Corrections Corp of America, REIT* 62,100
2,500 Cost Plus Inc* 100,600
2,000 Devry Inc* 51,900
3,200 Dover Motorsports Inc 13,696
15,100 EarthLink Inc* 114,609
1,900 Education Management Corp* 116,204
2,300 Ethan Allen Interiors Inc 89,033
4,200 Fisher Scientific International* 164,724
3,200 Fossil Inc* 89,792
4,200 Fred's Inc 150,150
5,250 FTI Consulting Inc* 131,250
5,200 G TECH Holdings Corp 220,376
3,300 Genesco Inc* 57,981
3,100 Getty Images Inc* 126,480
5,400 Hollywood Entertainment Corp* 93,798
1,600 Ihop Corp 56,384
3,000 Isle of Capris Casinos Inc* 56,400
5,500 ITT Educational Services Inc* 238,425
2,600 J Jill Group Inc* 38,766
3,200 Jack in the Box Inc* 67,808
2,700 Jarden Corp* 88,749
2,400 Jo-Ann Stores Inc* 72,480
1,000 K-Swiss Inc, Class A 39,740
1,800 Kenneth Cole Productions 48,582
1,800 Maximus Inc* 64,476
1,600 Meredith Corp 75,872
3,700 Movie Gallery Inc* 79,217
6,300 MPS Group Inc* 60,165
4,363 Nautilus Group Inc 51,041
6,100 Oakley Inc* 66,429
3,000 Outback Steakhouse Inc 115,950
5,350 Pacific Sunwear of California* 180,830
2,300 Papa Johns International Inc* 57,960
4,200 Payless ShoeSource Inc* 61,908
2,400 PF Chang's China Bistro Inc* 111,600
4,000 Pier 1 Imports Inc 82,280
2,100 Pixar Inc* 152,943
1,800 Pre-Paid Legal Services Inc* 40,356
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
6,800 Quiksilver Inc* 123,420
4,100 Reader's Digest Association Inc 49,897
4,700 Reebok International Ltd 157,215
2,400 Regal Entertainment Group 46,200
3,900 Regis Corp 134,901
3,900 Rent-A-Center Inc* 313,443
2,700 Ross Stores Inc 136,026
4,100 Ruby Tuesday Inc 93,357
2,400 Sharper Image Corp* 67,824
3,700 Sinclair Broadcast Group, Class A* 41,181
5,100 Skechers U.S.A. Inc* 39,015
2,300 Sonic Automotive Inc* 63,250
4,200 Station Casinos Inc 124,950
2,300 Steven Madden Ltd* 48,070
3,400 Take-Two Interactive Software* 101,218
6,200 TeleTech Holdings Inc* 32,426
9,300 Tivo Inc* 101,091
3,200 Too Inc* 51,904
5,200 Topps Inc (The) 46,488
5,000 Tractor Supply Co* 172,500
3,200 United Online Inc* 121,952
2,600 United Stationers Inc* 105,664
2,300 Urban Outfitters Inc* 112,769
16,500 VeriSign Inc* 247,005
1,300 Waste Connections Inc* 45,799
2,600 West Corp* 64,480
------------
9,494,820
------------
CONSUMER STAPLES -- 1.0%
4,400 Chiquita Brands International* 79,684
3,400 Constellation Brands Inc, Class A* 97,750
2,500 JM Smucker Co 101,200
1,700 Natures Sunshine Products Inc 14,399
1,600 The Dial Corp 32,432
1,100 Universal Corp 46,090
------------
371,555
------------
FINANCIAL SERVICES -- 10.0%
3,400 American Home Mortgage Holdings Inc 54,570
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
9,800 Americredit* 105,154
17,800 Ameritrade Holding Corp* 193,486
3,400 Bank of Hawaii Corp 115,260
12,400 Checkfree Corp* 284,952
2,200 Chelsea Property Group Inc 101,090
6,400 CompuCredit Corp* 93,888
3,200 Doral Financial Corp 131,360
800 East West Bancorp Inc 35,488
4,600 eSPEED Inc* 104,880
3,800 Factset Research Systems Inc 184,490
3,500 Fair Isaac Corp 205,100
6,400 Fidelity National Financial Inc 184,960
2,300 First Midwest Bancorp Inc 70,150
4,700 First Niagara Financial Group Inc 70,641
9,100 Flagstar Bancorp Inc 177,723
7,400 Fremont General Corp 95,312
2,500 Gallagher (Arthur J) and Co 67,500
1,300 General Growth Properties, REIT 90,155
2,800 Investment Technology Group Inc* 51,072
3,100 Irwin Financial Corp 69,781
10,300 Knight Trading Group Inc* 95,481
1,300 Mcgrath Rentcorp 36,010
6,500 New Century Financial Corp 158,405
5,282 New York Community Bancorp Inc 162,474
2,500 Nuveen Investments Inc 65,175
1,600 Pacific Capital Bancorp 52,864
2,300 Provident Financial Group 61,433
15,200 Providian Financial Corp* 155,800
3,000 Sandy Spring Bancorp Inc 101,400
400 Southwest Bancorp of Texas Inc 14,784
1,300 Triad Guaranty Inc* 60,411
4,900 UCBH Holdings Inc 156,751
------------
3,608,000
------------
HEALTH CARE -- 22.0%
1,800 Able Laboratories Inc* 42,822
4,400 Adolor Corp* 62,656
2,550 Advanced Neuromodulation Systems Inc* 96,900
6,200 AdvancePCS* 249,116
3,700 Allos Therapeutics* 11,618
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
6,000 American Pharmaceutical Partners Inc* 285,840
5,500 Amylin Pharmaceuticals Inc* 157,025
2,700 Apogent Technologies Inc* 58,968
2,300 Aspect Medical Systems Inc* 23,575
5,500 AVI BioPharma Inc* 30,470
4,200 Barr Laboratories Inc* 284,214
4,800 Biolase Technology Inc* 56,016
6,200 BioMarin Pharmaceuticals Inc* 58,590
2,700 Biosite Inc* 125,280
6,800 Celgene Corp* 261,732
6,400 Cell Therapeutics Inc* 69,952
2,500 Centene Corp* 70,000
1,800 Charles River Laboratories International Inc* 64,350
3,400 Chattem Inc* 45,934
2,400 CIMA Labs Inc* 64,776
3,000 Cooper Cos Inc 111,270
5,200 Covance Inc* 108,420
6,100 Coventry Health Care Inc* 286,334
2,200 Curative Health Services Inc* 37,730
2,700 Cyberonics* 74,331
7,100 Cytyc Corp* 92,868
2,100 Digene Corp* 79,821
6,000 Endo Pharmaceuticals Holdings Inc* 101,700
4,200 eResearch Technology Inc* 133,812
3,100 First Health Group Corp* 81,282
3,900 Hanger Orthopedic Group Inc* 54,405
3,200 Hologic Inc* 52,800
3,100 ICN Pharmaceuticals Inc 54,250
2,900 ICOS Corp* 112,926
3,100 IDEXX Laboratories Inc* 128,991
1,200 Imclone Systems Inc* 50,436
1,800 Immucor Inc* 45,000
4,300 Invitrogen Corp* 247,981
10,500 Ivax Corp* 207,900
1,800 Kensey Nash Corp* 50,130
2,400 Kos Pharmaceuticals Inc* 90,480
2,100 LabOne Inc* 48,153
5,300 Lincare Holdings Inc* 183,539
5,000 Medicines Co* 143,250
1,600 Medicis Pharmaceutical Corp 97,728
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
4,400 Mentor Corp 101,684
3,100 MGI Pharma Inc* 119,629
3,900 Mid Atlantic Medical Services Inc* 191,334
1,700 Neurocrine Biosciences Inc* 90,967
4,800 Odyssey HealthCare Inc* 147,024
1,800 Pediatrix Medical Group Inc* 80,496
4,100 Pharmaceutical Product Development Inc* 104,591
5,700 Pharmaceutical Resources Inc* 318,858
2,000 PolyMedica Corp 90,040
3,200 Renal Care Group Inc* 116,192
2,300 ResMed Inc* 99,590
4,600 Sepracor Inc* 123,832
3,300 Sierra Health Services Inc* 64,383
4,000 Stericycle Inc* 191,960
8,900 Steris Corp* 208,438
6,700 Thoratec Corp* 100,567
3,200 United Surgical Partners International Inc* 83,072
1,000 Universal Health Services, Class B* 49,780
5,600 Varian Medical Systems Inc* 312,760
4,500 VitalWorks Inc* 22,545
7,700 Watson Pharmaceutical Inc* 316,470
21,100 WebMD Corp* 217,330
------------
7,946,913
------------
MATERIALS & PROCESSING -- 1.0%
4,700 Energizer Holdings Inc* 172,866
1,200 Great Lakes Chemical Corp 25,428
1,500 Olin Corp 27,315
1,600 Royal Gold Inc 39,152
2,300 Trex Company Inc* 83,260
1,600 WCI Communities Inc* 24,688
------------
372,709
------------
OTHER -- 0.4%
2,500 FMC Corp* 62,225
2,400 Lancaster Colony Corp 95,448
------------
157,673
------------
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
OTHER ENERGY -- 3.7%
24,000 Chesapeake Energy Corp 260,160
2,600 Clayton Williams Energy Inc* 52,598
64 Cross Timbers Royalty Trust 1,422
7,400 Denbury Resources Inc* 97,310
2,200 Evergreen Resources Inc* 122,914
3,812 Patina Oil & Gas Corp 141,235
2,500 Peabody Energy Corp 79,125
5,000 Pogo Producing Co 229,800
3,900 Reliant Resources Inc* 18,018
1,500 Stone Energy Corp* 58,050
1,100 Varco International Inc* 18,975
4,700 Vintage Petroleum Inc 52,546
8,600 XTO Energy Inc 180,514
------------
1,312,667
------------
PRODUCER DURABLES -- 3.9%
15,200 American Tower Corp* 172,976
1,700 Ametek Inc 71,332
2,400 Cohu Inc 53,040
13,900 Crown Castle International Corp* 149,425
1,100 Donaldson Co Inc 60,390
2,600 Engineered Support Systems 152,516
2,300 Hovnanian Enterprises Inc* 141,841
4,400 Interdigital Communications Corp* 78,100
1,800 Manitowoc Co 45,990
1,700 Meritage Corporation* 76,432
500 NVR Inc* 216,750
3,700 Plantronics Inc* 93,499
3,200 Rayovac Corp* 44,736
3,500 Somera Communications Inc* 5,845
7,200 Zomax Inc* 30,600
------------
1,393,472
------------
TECHNOLOGY -- 21.6%
9,400 Adaptec Inc* 68,714
5,100 Adtran Inc 279,480
3,400 American Management Systems Inc* 48,790
1,600 Analogic Corp 82,416
1,800 Ansys Inc* 63,720
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
3,100 Artisan Components Inc* 65,875
4,400 Avid Technology Inc* 218,460
2,900 Avocent Corp* 84,680
2,000 Black Box Corp 94,200
8,000 Ceridian Corp* 155,520
6,300 Ciber Inc* 67,158
46,200 Ciena Corp* 300,300
15,600 Citrix Systems Inc* 321,204
7,000 Cognizant Technology Solutions Corp* 243,810
11,800 Compuware Corp* 70,210
11,000 Comverse Technology Inc* 181,390
12,000 Cray Inc* 152,040
11,200 Cree Inc* 177,184
3,600 Digital River Inc* 96,048
3,000 Electronics for Imaging Inc* 64,260
15,700 Foundry Networks Inc* 305,365
11,800 GlobespanVirata Inc* 89,798
3,300 Hutchinson Technology Inc* 104,379
1,200 Imation Corp 43,140
1,239 InterActiveCorp* 45,855
2,100 Invision Technologies Inc* 52,836
24,500 Juniper Networks Inc* 421,890
6,400 Macromedia Inc* 152,576
16,800 Maxtor Corp* 192,024
12,000 McDATA Corp* 121,800
4,000 Mercury Computer Systems Inc* 88,000
4,900 Microsemi Corp* 96,873
2,200 MicroStrategy Inc* 89,012
9,200 NetScreen Technologies Inc* 220,156
3,400 Omnivision Technologies* 150,926
2,600 OSI Systems Inc* 39,832
1,600 Overland Storage Inc* 25,920
8,600 PerkinElmer Inc 142,244
6,800 Pixelworks Inc* 64,396
8,400 PMC-Sierra Inc* 119,784
2,900 QRS Corp* 24,795
4,500 Quadramed Corp* 10,350
10,000 Rambus Inc* 166,600
3,900 RSA Security Inc* 47,112
5,500 Sandisk Corp* 332,530
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
3,800 ScanSoft Inc* 16,720
1,600 Siliconix Inc* 83,360
15,600 Skyworks Solutions Inc* 176,904
29,200 Sonus Networks Inc* 207,320
2,800 SPSS Inc* 54,292
1,400 SRA International Inc* 50,918
3,700 Storage Technology Corp* 94,757
1,700 Stratasys Inc* 69,190
2,800 Supertex Inc* 51,856
6,100 Syntel Inc 155,361
1,600 Talx Corp 33,858
7,600 Tekelec* 132,848
4,600 Trident Microsystems Inc* 59,570
3,800 Trimble Navigation Ltd* 101,650
5,800 Utstarcom Inc* 249,168
22,600 Western Digital Corp* 259,674
------------
7,781,098
------------
UTILITIES -- 3.8%
20,500 AES Corp* 132,840
6,100 Boston Communications Group* 82,045
9,300 Cablevision Systems Corp, Class A* 187,395
18,600 Cincinnati Bell Inc* 105,090
15,600 Citizens Communications Co* 177,840
2,300 Commonwealth Telephone Enterprises Inc* 90,758
4,200 Energen Corp 149,856
2,200 IDT Corp* 38,544
13,700 Nextel Partners Inc* 112,751
4,850 UGI Corp 148,168
7,500 Western Wireless Corp* 138,600
------------
1,363,887
------------
TOTAL COMMON STOCKS (COST $28,231,976) 34,490,634
------------
RIGHTS AND WARRANTS -- 0.1%
TECHNOLOGY -- 0.1%
806 InterActiveCorp Warrants, Expires 2/04/09* 39,252
------------
TOTAL RIGHTS AND WARRANTS (COST $5,846) 39,252
------------
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 11.2%
CASH EQUIVALENTS -- 6.9%
573,858 Dreyfus Money Market Fund(a) 573,858
$ 1,341,850 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.05%, due 9/29/03(a) 1,341,850
553,513 Merrimac Money Market Fund(a) 553,513
------------
2,469,221
------------
U.S. GOVERNMENT -- 0.3%
$ 100,000 U.S. Treasury Bill, 0.93%, due 10/23/03(b) 99,828
------------
REPURCHASE AGREEMENTS -- 4.0%
$ 1,458,779 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due 9/02/03, with a maturity value of
$1,458,892 and an effective yield of 0.70%,
collateralized by a U.S. Treasury Bill with a rate of
1.175%, maturity date of 9/25/03 and a market value of
$1,493,791. 1,458,779
------------
TOTAL SHORT-TERM INVESTMENTS (COST $4,027,828) 4,027,828
------------
TOTAL INVESTMENTS -- 106.9%
(Cost $32,265,650) 38,557,714
Other Assets and Liabilities (net) -- (6.9%) (2,474,688)
------------
TOTAL NET ASSETS -- 100.0% $ 36,083,026
============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</Table>
<Table>
REIT - Real Estate Investment Trust
</Table>
* Non-income producing security.
(a) Represents investment of security lending collateral (Note 1).
(b) All or a portion of this security has been segregated to cover margin
requirements on open financial futures contracts (Note 6).
10 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$2,379,330 (cost $32,265,650) (Note 1) $38,557,714
Dividends and interest receivable 18,305
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 6,900
Receivable for expenses reimbursed by Manager (Note 2) 7,285
-----------
Total assets 38,590,204
-----------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 2,469,221
Payable to affiliate for (Note 2):
Management fee 9,569
Shareholder service fee 4,350
Accrued expenses 24,038
-----------
Total liabilities 2,507,178
-----------
NET ASSETS $36,083,026
===========
NET ASSETS CONSIST OF:
Paid-in capital $33,516,657
Accumulated undistributed net investment income 28,241
Accumulated net realized loss (3,823,043)
Net unrealized appreciation 6,361,171
-----------
$36,083,026
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $36,083,026
===========
SHARES OUTSTANDING:
Class III 1,906,701
===========
NET ASSET VALUE PER SHARE:
Class III $ 18.92
===========
</Table>
See accompanying notes to the financial statements. 11
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $103) $ 81,367
Interest (including securities lending income of $10,526) 12,787
----------
Total income 94,154
----------
EXPENSES:
Management fee (Note 2) 44,194
Audit fees 18,216
Custodian and transfer agent fees 15,589
Registration fees 828
Legal fees 368
Trustees fees and related expenses (Note 2) 204
Miscellaneous 184
Fees reimbursed by Manager (Note 2) (35,185)
----------
44,398
Shareholder service fee (Note 2) - Class III 20,088
----------
Net expenses 64,486
----------
Net investment income 29,668
----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 1,794,159
Closed futures contracts 74,568
----------
Net realized gain 1,868,727
----------
Change in net unrealized appreciation (depreciation) on:
Investments 6,583,529
Open futures contracts 70,368
----------
Net unrealized gain 6,653,897
----------
Net realized and unrealized gain 8,522,624
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,552,292
==========
</Table>
12 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income (loss) $ 29,668 $ (8,876)
Net realized gain (loss) 1,868,727 (1,478,297)
Change in net unrealized appreciation (depreciation) 6,653,897 (1,379,882)
----------- -----------
Net increase (decrease) in net assets from
operations 8,552,292 (2,867,055)
----------- -----------
Distributions to shareholders from:
Net investment income
Class III (1,427) --
----------- -----------
Total distributions from net investment income (1,427) --
----------- -----------
Net share transactions (Note 5):
Class III 9,863,388 3,486,588
----------- -----------
Increase in net assets resulting from net share
transactions 9,863,388 3,486,588
----------- -----------
Total increase in net assets 18,414,253 619,533
NET ASSETS:
Beginning of period 17,668,773 17,049,240
----------- -----------
End of period (including accumulated undistributed
net investment income of $28,241 and $0,
respectively) $36,083,026 $17,668,773
=========== ===========
</Table>
See accompanying notes to the financial statements. 13
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ------------------------------------------------------------------------
(UNAUDITED) 2003 2002 2001++ 2000++ 1999++
---------------- ----------- ----------- -------------- -------------- --------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.52 $ 16.48 $ 19.08 $ 168.70 $ 108.80 $ 122.80
------- ------- ------- ------------ -------- --------
Income from investment operations:
Net investment income (loss) 0.02+ (0.01)+ 0.01+ (0.04) 0.10 0.30
Net realized and unrealized gain
(loss) 5.38 (2.95) (1.12) (37.26) 70.20 (9.80)
------- ------- ------- ------------ -------- --------
Total from investment
operations 5.40 (2.96) (1.11) (37.30) 70.30 (9.50)
------- ------- ------- ------------ -------- --------
Less distributions to shareholders:
From net investment income (0.00)(c) -- -- -- (0.30) (0.20)
From net realized gains -- -- (1.49) (112.32) (10.10) (4.30)
------- ------- ------- ------------ -------- --------
Total distributions -- -- (1.49) (112.32) (10.40) (4.50)
------- ------- ------- ------------ -------- --------
NET ASSET VALUE, END OF PERIOD $ 18.92 $ 13.52 $ 16.48 $ 19.08 $ 168.70 $ 108.80
======= ======= ======= ============ ======== ========
TOTAL RETURN(a) 39.95%* (17.96)% (6.36)% (33.14)% 67.27% (8.20)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $36,083 $17,669 $17,049 $ 19,957 $137,290 $129,983
Net expenses to average daily net
assets 0.48%** 0.49% 0.48% 0.48% 0.48% 0.48%
Net investment income (loss) to
average daily net assets 0.22%** (0.06)% 0.07% (0.09)% 0.09% 0.21%
Portfolio turnover rate 45%* 116% 118% 147% 122% 113%
Fees and expenses reimbursed by
the Manager to average daily net
assets: 0.26%** 0.37% 0.33% 0.19% 0.11% 0.23%
Purchase and redemption fees
consisted of the following per
share amounts:(b) $ 0.06 $ 0.03 $ 0.02 $ 0.87 N/A N/A
</Table>
(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.
(b) Effective March 1, 2000, the Fund adopted the provisions of the revised
AICPA Audit and Accounting Guide for Investment Companies which requires
the disclosure of the per share effect of purchase and redemption fees.
Periods prior to March 1, 2000 have not been restated to reflect this
change. Amounts calculated using average shares outstanding throughout
the period.
(c) Distributions from net investment income was less than $0.01.
+ Calculated using average shares outstanding throughout the period.
++ Amounts were adjusted to reflect a 1:10 reverse stock split effective
December 11, 2000.
* Not Annualized.
** Annualized.
14 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Small Cap Growth Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund seeks long-term growth of capital. The Fund's benchmark is the
Russell 2500 Growth Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates fair value. Shares of mutual funds are
valued at their net asset value as reported on each business day.
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.
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
15
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for all
open futures contracts as of August 31, 2003.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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
16
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
disagree as to the meaning of contractual terms in the agreements, or that
there may be unfavorable changes in the price of the security or index
underlying these transactions. As of August 31, 2003, there were no open
swap agreements.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
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 investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund loaned securities having a market
value of $2,379,330 collateralized by cash in the amount of $2,469,221,
which was invested in short-term instruments.
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 quarterly, and from net realized short-term and long-term capital
gains 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.
17
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
At February 28, 2003, the Fund had capital loss carryforwards available to
offset future capital gains, if any, to the extent permitted by the Code,
of $3,602,582 expiring in 2010 and $1,513,997 expiring in 2011. The Fund
elected to defer to March 1, 2003 post-October losses of $511,521.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the amortization of premiums and discounts. Non-cash
dividends, if any, are recorded at the fair market value of the securities
received. Dividends representing a return of capital are reflected as a
reduction of cost, when the amount of the return of capital is
conclusively determined. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases and fee on redemptions of Fund shares is
.50% of the amount invested or redeemed. If the Manager determines that
any portion of a cash purchase is offset by a corresponding cash
redemption occurring on the same day, the purchase premium or redemption
fee charged by the Fund will be reduced by 100% with respect to that
portion. In addition, the purchase premium or redemption fee charged by
the Fund may be waived if the Manager determines the Fund is substantially
underweighted/overweighted in cash so that a purchase or redemption will
not require a securities transaction. All purchase premiums and redemption
fees are paid to and recorded by the Fund as paid-in capital. For the six
months ended August 31, 2003 and the year ended February 28, 2003, the
Fund received $70,186 and $25,921 in purchase premiums and $20,925 and
$8,521 in redemption fees, respectively. There is no premium for
reinvested distributions or in-kind transactions.
18
<Page>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .33% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $204. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, substantially all of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $20,420,056 and $11,305,793, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$32,335,195 $6,888,220 $(665,701) $6,222,519
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 59.3% 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 SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
--------------------- ---------------------
Shares Amount Shares Amount
Class III: -------- ----------- -------- -----------
Shares sold 862,221 $14,187,190 373,781 $ 5,184,289
Shares issued to shareholders
in reinvestment of distributions 84 1,198 -- --
Shares repurchased (262,165) (4,325,000) (101,766) (1,697,701)
-------- ----------- -------- -----------
Net increase 600,140 $ 9,863,388 272,015 $ 3,486,588
======== =========== ======== ===========
</Table>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FINANCIAL FUTURES
<Table>
<Caption>
Number of Contract Net Unrealized
Contracts Type Expiration Date Value Appreciation
--------- ----------------- ------------------- ----------- --------------
Buys
4 Russell 2000 September 2003 $994,900 $69,107
=======
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
20
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 24.7%
CORPORATE DEBT -- 1.5%
2,500,000 Bank Austria AG, 144A, 7.25%, due 02/15/17 2,887,000
--------------
FOREIGN GOVERNMENT OBLIGATIONS -- 3.5%
24,000,000 Bulgaria Discount Strips, 0.00%, due 07/28/24(a) 6,510,086
--------------
U.S. GOVERNMENT -- 2.1%
1,091,740 U.S. Treasury Inflation Indexed Note, 4.25%, due
01/15/10 1,250,213
2,352,000 U.S. Treasury Inflation Indexed Note, 3.88%, due
01/15/09(b) 2,628,360
--------------
3,878,573
--------------
U.S. GOVERNMENT AGENCY -- 17.6%
10,000,000 Agency for International Development Floater (Support
of India),
Variable Rate, 3 mo. LIBOR + .10%, 1.21%, due
02/01/27 9,850,000
5,750,000 Agency for International Development Floater (Support
of Jamaica), Variable Rate, 6 mo. LIBOR + .30%,
1.51%, due 12/01/14 5,750,000
5,030,935 Agency for International Development Floater (Support
of Jamaica), Variable Rate, 6 mo. U.S. Treasury Bill
+ .75%, 1.81%, due 03/30/19 5,005,781
6,255,000 Agency for International Development Floater (Support
of Sri Lanka), Variable Rate, 6 mo. LIBOR + .20%,
1.41%, due 06/15/12 6,239,362
6,233,336 Agency for International Development Floater (Support
of Zimbabwe), Variable Rate, 3 mo. U.S. Treasury Bill
x 115%, 1.06%, due 01/01/12 6,147,628
--------------
32,992,771
--------------
TOTAL DEBT OBLIGATIONS (COST $45,037,750) 46,268,430
--------------
MUTUAL FUNDS -- 71.5%
24,511 GMO Alpha LIBOR Fund 592,182
5,302,891 GMO Short-Duration Collateral Fund 133,685,885
--------------
TOTAL MUTUAL FUNDS (COST $133,809,072) 134,278,067
--------------
PREFERRED STOCKS -- 3.0%
BANKING -- 3.0%
10,000 Home Ownership Funding 2 Preferred 144A, 13.338% 5,576,260
--------------
TOTAL PREFERRED STOCKS (COST $6,358,144) 5,576,260
--------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.7%
CASH EQUIVALENTS -- 0.7%
1,318,550 Merrimac Cash Fund 1,318,550
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,318,550) 1,318,550
--------------
TOTAL INVESTMENTS -- 99.9%
(Cost $186,523,516) 187,441,307
Other Assets and Liabilities (net) -- 0.1% 256,898
--------------
TOTAL NET ASSETS -- 100.0% $ 187,698,205
==============
</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.
Variable rates - The rates shown on variable rate notes are the
current interest rates at August 31, 2003, which are subject
to change based on the terms of the security.
</Table>
(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 has been segregated to cover margin
requirements on open financial futures contracts and open swap contracts
(Note 6).
2 See accompanying notes to the financial statements.
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $186,523,516) (Note 1) $187,441,307
Receivable for Fund shares sold 2,231,000
Interest receivable 223,747
Net receivable for open swap contracts (Notes 1 and 6) 422,937
Receivable for expenses reimbursed by Manager (Note 2) 6,851
------------
Total assets 190,325,842
------------
LIABILITIES:
Payable for investments purchased 2,500,000
Payable to affiliate for (Note 2):
Management fee 14,913
Shareholder service fee 22,370
Payable for variation margin on open futures contracts
(Notes 1 and 6) 65,707
Accrued expenses 24,647
------------
Total liabilities 2,627,637
------------
NET ASSETS $187,698,205
============
NET ASSETS CONSIST OF:
Paid-in capital $187,947,920
Accumulated undistributed net investment income 598,577
Accumulated net realized loss (2,971,433)
Net unrealized appreciation 2,123,141
------------
$187,698,205
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $187,698,205
============
SHARES OUTSTANDING:
Class III 19,218,894
============
NET ASSET VALUE PER SHARE:
Class III $ 9.77
============
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends $ 640,002
Interest 590,632
-----------
Total income 1,230,634
-----------
EXPENSES:
Management fee (Note 2) 73,003
Audit fees 18,308
Custodian and transfer agent fees 12,177
Legal fees 3,312
Registration fees 2,208
Trustees fees and related expenses (Note 2) 1,293
Miscellaneous 1,012
Fees reimbursed by Manager (Note 2) (36,189)
-----------
75,124
Shareholder service fee (Note 2) - Class III 109,520
-----------
Net expenses 184,644
-----------
Net investment income 1,045,990
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 102,206
Closed futures contracts (1,302,639)
Closed swap contracts (1,596,731)
-----------
Net realized loss (2,797,164)
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (911,992)
Open futures contracts 232,987
Open swap contracts 595,732
-----------
Net unrealized loss (83,273)
-----------
Net realized and unrealized loss (2,880,437)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,834,447)
===========
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,045,990 $ 3,001,859
Net realized gain (loss) (2,797,164) 8,132,745
Change in net unrealized appreciation (depreciation) (83,273) 1,064,216
------------ ------------
Net increase (decrease) in net assets from
operations (1,834,447) 12,198,820
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (773,128) (3,105,892)
Net realized gains
Class III (3,267,721) (4,216,075)
------------ ------------
(4,040,849) (7,321,967)
------------ ------------
Net share transactions (Note 5):
Class III 80,350,590 (46,654,360)
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions 80,350,590 (46,654,360)
------------ ------------
Total increase (decrease) in net assets 74,475,294 (41,777,507)
NET ASSETS:
Beginning of period 113,222,911 155,000,418
------------ ------------
End of period (including accumulated undistributed
net investment income of $598,577 and $325,715,
respectively) $187,698,205 $113,222,911
============ ============
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001(C) 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.08 $ 9.68 $ 9.98 $ 9.23 $ 9.65 $ 10.26
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(d) 0.07+ 0.25+ 0.43+ 0.61+ 0.60 0.68
Net realized and unrealized gain
(loss) (0.13) 0.83 0.20 0.72 (0.42) (0.15)
-------- -------- -------- -------- -------- --------
Total from investment operations (0.06) 1.08 0.63 1.33 0.18 0.53
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.05) (0.27) (0.50) (0.58) (0.58) (0.68)
From net realized gains (0.20) (0.41) (0.43) -- (0.02) (0.46)
-------- -------- -------- -------- -------- --------
Total distributions (0.25) (0.68) (0.93) (0.58) (0.60) (1.14)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 10.08 $ 9.68 $ 9.98 $ 9.23 $ 9.65
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) (0.61)%** 11.43% 6.62% 14.91% 2.03% 5.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $187,698 $113,223 $155,000 $170,534 $164,457 $175,071
Net operating expenses to average
daily net assets 0.25%* 0.25% 0.25% 0.25% 0.25% 0.25%
Interest expense to average daily net
assets -- -- -- 0.07% 0.19% 0.02%
Total net expenses to average daily
net assets(e) 0.25%* 0.25% 0.25% 0.32%(b) 0.44%(b) 0.27%(b)
Net investment income to average
daily net assets(d) 1.43%* 2.57% 4.35% 6.41% 5.85% 6.21%
Portfolio turnover rate 9%** 71% 19% 65% 20% 17%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.05%* 0.05% 0.05% 0.05% 0.05% 0.19%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods 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 for
the year ended February 28, 2001 was to increase net investment income
per share by $0.001, decrease net realized and unrealized gains and
losses per share by $0.001 and increase the ratio of net investment
income to average net assets from 6.40% to 6.41%. Per share data and
ratios/suppplemental data for periods prior to March 1, 2000 have not
been restated to reflect this change.
(d) Net investment income is affected by timing of the declaration of
dividends by other GMO Funds in which the Fund invests.
(e) Net expenses exclude expenses incurred indirectly through investment in
other GMO Funds in which the Fund invests.
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
6 See accompanying notes to the financial statements.
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Domestic Bond Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund seeks high total return through investment in U.S. investment
grade securities. The Fund's benchmark is the Lehman Brothers U.S.
Government Bond Index.
At August 31, 2003, 0.3% of the Fund was invested in the GMO Alpha LIBOR
Fund and 71.2% of the Fund was invested in the GMO Short-Duration
Collateral Fund, separate funds of GMO Trust managed by GMO.
Shares of the GMO Alpha LIBOR Fund and the GMO Short-Duration Collateral
Fund are not publicly available for direct purchase. The financial
statements of the GMO Alpha LIBOR Fund and the GMO Short-Duration
Collateral Fund should be read in conjunction with the Fund's financial
statements.
In November 2002, certain bonds ("NPF bonds") held by GMO Alpha LIBOR Fund
("Alpha LIBOR Fund"), in which the Fund had significant investments,
defaulted amid allegations of fraud and significant violations of the
bonds' indentures. Currently, no market exists for the NPF bonds, and they
are being valued at fair value by the trustees of GMO Trust or persons
acting at their direction. The devaluation of the NPF bonds had a negative
impact on the Fund's net asset value per share.
In late November 2002, Alpha LIBOR Fund undertook a reorganization
transaction with a new series of GMO Trust, GMO Short-Duration Collateral
Fund ("SDCF") and approximately 78% of the Fund's interest in Alpha LIBOR
Fund was transferred to SDCF in exchange for SDCF shares. The
reorganization was treated as a sale of the Alpha LIBOR Fund shares for
financial reporting purposes and a distribution by Alpha LIBOR Fund for
tax purposes. Accordingly, for financial reporting purposes, the Fund
recognized a loss on the sale of the Alpha LIBOR shares of approximately
$173,371. In addition, the Fund recognized for tax, but not for financial
reporting purposes, ordinary income of $93,879 and long-term capital gains
of $16,744 from Alpha LIBOR Fund. $283,994 was added to the tax cost basis
of the Fund's holdings of Alpha LIBOR Fund.
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
7
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
preparation of financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
closing values of such securities on their respective exchanges, and those
values are then translated into U.S. dollars at the current exchange rate.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates fair value. Shares of other
funds of the Trust ("underlying funds") and other mutual funds are valued
at their net asset value as reported on each business day. 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.
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, or an underlying fund in which it
invests, were valued on the basis of a price provided by a principal
market maker. The prices provided by the principal market makers may
differ from the value that would be realized if the securities were sold
and the differences could be material to the financial statements. At
August 31, 2003, the total value of these securities represented 26% of
net assets.
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
8
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
tends to decrease the Fund's exposure to the underlying instrument or
hedge other Fund instruments. Upon entering into a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government and
agency obligations in accordance with the initial margin requirements of
the broker or exchange. 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 6 for
all open futures contracts as of August 31, 2003.
OPTIONS
The Fund may write call and put options on futures or securities it owns
or in which it may invest. Writing put options tends to increase the
Fund's exposure to the underlying instrument. Writing call options tends
to decrease the Fund's exposure to the underlying instrument. When the
Fund writes a call or put option, an amount equal to the premium received
is recorded as a liability and subsequently marked to market to reflect
the current value of the option written. Premiums received from writing
options which expire are treated as realized gains. Premiums received from
writing options which are exercised or closed are added to the proceeds or
offset against the amounts paid on the underlying future or security
transaction to determine the realized gain or loss. The Fund as a writer
of an option has no control over whether the underlying future or security
may be sold (call) or purchased (put) and as a result bears the market
risk of an unfavorable change in the price of the future or security
underlying the written option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
August 31, 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 are added
to the amounts paid on the underlying future, security or currency
transaction to determine the realized gain or loss. Premiums paid for
purchasing options which are closed are offset against the proceeds on the
9
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
closing transaction to determine the realized gain or loss. The risk
associated with purchasing put and call options is limited to the premium
paid. At August 31, 2003, there were no open purchased option contracts.
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 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 and forward swap spread lock
swap agreements to manage its exposure to interest rates. Interest rate
swap agreements involve the exchange by the Fund with another party of
their respective commitments to pay or receive interest, e.g., an exchange
of floating rate payments for fixed rate payments with respect to a
notional amount of principal. 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
10
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 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. The Fund also may
enter into structured warrants, which are derivatives like swaps and have
risks similar to swaps. 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 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 6 for a summary of open
swap agreements as of August 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
11
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
same assets at a later date at a fixed price. In connection with these
agreements, the Fund establishes segregated accounts with its custodian in
which the Fund maintains cash, U.S. Government securities or other liquid
high grade debt obligations in the name of the counterparty equal in value
to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the
securities the Fund has sold may decline below the price at which it is
obligated to repurchase them under the agreement. The market value of the
securities the Fund has sold is determined daily and any additional
required collateral is allocated to or sent by the fund on the next
business day. During the six months ended August 31, 2003, the Fund did
not enter into any reverse repurchase agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, there were 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 quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions are paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash
distributions. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
12
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the amortization of
premiums and discounts. Dividend income is recorded on the ex-dividend
date. Non-cash dividends, if any, are recorded at the fair market value of
the securities received. Interest income on U.S. Treasury inflation
indexed securities is accrued daily based upon an inflation adjusted
principal. Additionally, any increase in the principal or face amount of
the securities adjusted for inflation is recorded as interest income. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .10% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund incurs fees and expenses indirectly as a shareholder in Alpha
LIBOR Fund and SDCF. For the six months ended August 31, 2003, indirect
operating expenses (excluding investment-related expenses) were .002% of
the Fund's average daily net assets, and indirect investment-related
expenses (including, but not limited to, interest expense, foreign audit
expense, and investment-related legal expense) were .003% of the Fund's
average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $925. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
13
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
For the six months ended August 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 $ 1,246,067 $ --
Investments (non-U.S. Government securities) 87,914,572 13,121,383
</Table>
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$186,826,405 $1,787,281 $(1,172,379) $614,902
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 61.7% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares. One of the shareholders is another fund of GMO Trust.
Investment activities of these shareholders may have a material effect on
the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ ------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ---------- ------------
Shares sold 10,183,519 $102,784,009 3,707,607 $ 36,658,798
Shares issued to shareholders in reinvestment
of distributions 395,080 3,960,993 715,346 7,060,380
Shares repurchased (2,593,130) (26,394,412) (9,196,332) (90,373,538)
---------- ------------ ---------- ------------
Net increase (decrease) 7,985,469 $ 80,350,590 (4,773,379) $(46,654,360)
========== ============ ========== ============
</Table>
14
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FUTURES CONTRACTS
<Table>
<Caption>
Number of Contract
Contracts Type Expiration Date Value
--------- --------------------------------------------- --------------------------------------------- -------------
Buys
138 U.S. Long Bond December 2003 $14,628,000
151 U.S. Treasury Note 10 Yr December 2003 16,567,531
137 U.S. Treasury Note 5 Yr December 2003 15,050,734
<Caption>
Number of Net Unrealized
Contracts Appreciation
--------- --------------
Buys
138 $207,550
151 118,452
137 48,048
--------
$374,050
========
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments of margin requirements of the relevant broker or
exchange.
SWAP AGREEMENTS
<Table>
<Caption>
Notional Expiration Net Unrealized
Amount Date Description Appreciation
--------------- ---------- -------------------------------------------------- --------------
INTEREST RATE SWAPS
7,388,364 USD 7/28/24 Agreement with JPMorgan Chase Bank dated 8/28/02 $340,302
to pay $24,000,000 at expiration date and to
receive at expiration date $6,980,000 plus
interest based upon the 3 month Floating Rate
LIBOR (compounded quarterly) adjusted by a
specific spread.
TOTAL RETURN SWAPS
10,000,000 USD 9/02/03 Agreement with Deutsche Bank AG dated 2/27/03 to 42,584
receive (pay) the notional amount multiplied by
the return on the Lehman Brothers CMBS Index and
to pay the notional amount multiplied by the 1
month LIBOR adjusted by a specified spread.
</Table>
15
<Page>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Notional Expiration Net Unrealized
Amount Date Description Appreciation
--------------- ---------- -------------------------------------------------- --------------
10,000,000 USD 12/31/03 Agreement with Deutsche Bank AG dated 8/26/03 to $ --
receive (pay) the notional amount multiplied by
the return on the Lehman Brothers CMBS Index and
to pay the notional amount multiplied by the 1
month LIBOR adjusted by a specified spread.
20,000,000 USD 8/31/04 Agreement with JPMorgan Chase Bank dated 8/28/02 94,403
to receive (pay) the notional amount multiplied by
the return on the Lehman Brothers U.S. Government
Bond Index and to pay the notional amount
multiplied by the 1 month LIBOR adjusted by a
specified spread.
75,000,000 USD 7/29/05 Agreement with Lehman Brothers Special Financing 354,011
Inc. dated 6/17/03 to receive (pay) the notional
amount multiplied by the return on the Lehman
Brothers U.S. Government Bond Index and to pay the
notional amount multiplied by the 1 month LIBOR
adjusted by a specified spread.
--------
$831,300
========
</Table>
16
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
COMMON STOCKS -- 98.8%
AUTO & TRANSPORTATION -- 2.3%
4,600 Burlington Northern Santa Fe Co 130,410
1,900 CSX Corp 61,332
15,469 Ford Motor Co 178,822
16,841 General Motors Corp 692,165
1,200 Lear Corp* 66,660
800 United Parcel Service, Class B 50,208
-------------
1,179,597
-------------
CONSUMER DISCRETIONARY -- 13.6%
3,500 Abercrombie & Fitch Co, Class A* 106,540
5,000 Amazon.com Inc* 232,200
68,400 AOL Time Warner Inc* 1,119,024
3,200 Apollo Group Inc* 205,024
3,000 Autonation Inc* 56,370
400 Black and Decker Corp 17,112
1,500 CDW Corp 77,415
2,500 Clear Channel Communications Inc 112,800
1,700 Convergys Corp* 30,600
3,400 Dollar Tree Stores Inc* 133,382
10,200 Eastman Kodak Co 284,478
13,800 eBay Inc* 766,314
5,700 EchoStar Communications Corp* 210,330
6,600 Federated Department Stores Inc 288,420
3,100 Fox Entertainment Group Inc, Class A* 97,898
6,800 Gap Inc 142,052
15,600 Home Depot Inc 501,696
9,200 International Game Technology 237,728
5,700 Jones Apparel Group Inc 176,073
29,700 Liberty Media Corp, Series A* 359,370
2,300 Liz Claiborne Inc 79,281
5,000 May Department Stores Co 137,900
11,300 McDonald's Corp 253,346
2,200 Mohawk Industries Inc* 160,512
900 Omnicom Group 70,290
600 Outback Steakhouse Inc 23,190
2,500 Penney (JC) Co Inc 53,050
1,400 R.R. Donnelley and Sons 35,196
1,700 Ross Stores Inc 85,646
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
3,300 Sabre Holdings Corp 74,646
11,900 Sears Roebuck & Co 523,838
3,900 Toys R Us Inc* 53,118
4,100 VeriSign Inc* 61,377
800 VF Corp 32,080
1,000 Viacom Inc, Class A 44,990
1,000 Whirlpool Corp 69,580
3,000 Yahoo! Inc* 100,200
-------------
7,013,066
-------------
CONSUMER STAPLES -- 4.3%
6,500 Albertsons Inc 136,630
25,500 Altria Group Inc 1,051,110
800 Campbell Soup Co 19,360
4,400 Colgate-Palmolive Co 243,232
2,300 General Mills Co 106,628
6,200 Kroger Co* 119,102
11,400 Safeway Inc* 278,274
2,200 Sara Lee Corp 41,756
3,700 Sysco Corp 116,402
4,900 Tyson Foods Inc, Class A 54,880
1,500 UST Inc 50,100
-------------
2,217,474
-------------
FINANCIAL SERVICES -- 21.7%
5,600 Allstate Corp 200,200
3,150 AMBAC Financial Group 204,498
3,900 Ameritrade Holding Corp* 42,393
13,600 Bank of America Corp 1,077,800
3,100 Bear Stearns Cos Inc 216,938
4,600 Capital One Financial Corp 245,640
5,800 Cigna Corp 276,544
28,200 Citigroup Inc 1,222,470
2,200 CNA Financial Corp* 47,850
3,000 Comerica Inc 148,020
4,200 Countrywide Financial Corp 284,970
1,100 Edwards (AG) Inc 39,600
800 Fair Isaac Corp 46,880
14,500 Fannie Mae 939,455
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
4,725 Fidelity National Financial Inc 136,552
10,110 FleetBoston Financial Corp 299,155
2,900 Franklin Resources Inc 125,251
9,100 Freddie Mac 483,665
1,300 Gallagher (Arthur J) and Co 35,100
800 Golden West Financial Corp 69,016
1,350 Greenpoint Financial Corp 45,738
2,800 Hartford Financial Services Group Inc 149,016
17,010 J.P. Morgan Chase & Co 582,082
3,400 Janus Capital Group Inc 58,718
3,500 John Hancock Financial Services 106,855
3,800 KeyCorp 103,474
1,500 Lehman Brothers Holdings Inc 98,595
4,700 Lincoln National Corp 166,474
5,900 Loews Corp 242,844
3,000 MBIA Inc 169,380
11,800 MBNA Corp 275,412
2,400 Merrill Lynch & Co Inc 129,072
3,600 MetLife Inc 102,312
5,100 MGIC Investment Corp 287,487
10,900 Morgan Stanley 531,811
3,500 National City Corp 110,880
2,700 Old Republic International Corp 90,693
5,400 PMI Group Inc 191,052
2,800 PNC Financial Services Group 133,280
3,600 Radian Group Inc 171,324
700 Regions Financial Corp 24,682
3,000 SEI Investments Co 104,700
3,500 SLM Corp 140,630
1,700 Southtrust Corp 49,283
800 Sovereign Bancorp Inc 15,744
1,600 Suntrust Banks Inc 97,808
3,700 Torchmark Corp 149,332
6,300 Travelers Property Casualty Corp, Class A 96,957
5,600 Unumprovident Corp 78,960
3,000 Wachovia Corp 126,450
8,100 Washington Mutual Inc 315,738
2,600 Wells Fargo & Co 130,364
-------------
11,219,144
-------------
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
HEALTH CARE -- 19.7%
900 Aetna Inc 51,300
1,900 Allergan Inc 150,974
16,400 Amgen Inc* 1,080,760
3,500 Baxter International Inc 98,350
2,400 Becton Dickinson & Co 87,696
5,000 Biomet Inc 148,650
5,900 Boston Scientific Corp* 354,590
34,200 Bristol Myers Squibb Co 867,654
1,400 Cardinal Health Inc 79,702
2,400 Forest Laboratories Inc* 112,800
5,000 Genentech Inc* 397,000
3,100 Genzyme Corp - General Division* 146,165
2,300 Gilead Sciences Inc* 153,410
7,000 Guidant Corp 351,400
4,500 Health Net Inc* 143,235
4,700 Johnson & Johnson 233,026
3,300 Lilly (Eli) & Co 219,549
1,900 Lincare Holdings Inc* 65,797
3,919 Medco Health Solutions Inc* 104,637
3,800 Medtronic Inc 188,404
32,500 Merck & Co Inc 1,635,400
2,900 Mylan Laboratories Inc 105,560
79,430 Pfizer Inc 2,376,546
10,000 Schering Plough Corp 151,900
3,400 St Jude Medical Inc* 177,038
3,300 Stryker Corp 250,140
800 Varian Medical Systems Inc* 44,680
1,300 Watson Pharmaceutical Inc* 53,430
3,000 Wyeth 128,550
3,900 Zimmer Holdings Inc* 201,786
-------------
10,160,129
-------------
INTEGRATED OILS -- 1.8%
1,700 Amerada Hess Corp 80,155
9,583 ConocoPhillips 535,115
7,400 Marathon Oil Corp 206,386
3,400 Occidental Petroleum Corp 116,722
-------------
938,378
-------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- 0.6%
600 Eastman Chemical Co 21,486
600 Ecolab Inc 15,474
1,800 Engelhard Corp 50,526
2,700 Georgia-Pacific Group 62,559
300 PPG Industries Inc 16,473
1,200 Sealed Air Corp* 58,392
2,600 Sherwin Williams Co 78,208
-------------
303,118
-------------
OTHER -- 2.5%
1,200 3M Co 170,964
9,900 General Electric Co 292,743
11,100 Honeywell International Inc 321,789
2,600 Johnson Controls Inc 257,400
1,900 Textron Inc 85,500
7,300 Tyco International Ltd 150,234
-------------
1,278,630
-------------
OTHER ENERGY -- 1.8%
1,465 Apache Corp 101,056
4,100 Burlington Resources Inc 198,522
40 Cross Timbers Royalty Trust 898
19,000 El Paso Corp 139,460
10,700 Halliburton Co 258,726
700 Pogo Producing Co 32,172
2,500 Valero Energy Corp 98,500
5,433 XTO Energy Inc 114,039
-------------
943,373
-------------
PRODUCER DURABLES -- 2.7%
1,300 American Power Conversion Corp 23,296
6,300 Boeing Co 235,557
2,800 Centex Corp 211,176
400 Cooper Industries Ltd, Class A 20,356
6,900 DR Horton Inc 214,728
1,300 KB HOME 74,386
1,600 Lennar Corp 107,600
700 Lexmark International Inc* 46,928
1,660 Northrop Grumman Corp 158,497
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
PRODUCER DURABLES -- CONTINUED
1,600 Pulte Homes Inc 106,496
700 United Technologies Corp 56,175
14,000 Xerox Corp* 150,920
-------------
1,406,115
-------------
TECHNOLOGY -- 16.9%
2,400 Applera Corp-Applied Biosystems Group 52,224
9,300 BEA Systems Inc* 126,015
10,200 BMC Software Inc* 149,736
5,100 Cadence Design Systems Inc* 72,522
29,200 Cisco Systems Inc* 559,180
9,700 Citrix Systems Inc* 199,723
23,500 Computer Associates International Inc 602,305
32,300 Corning Inc* 266,475
7,800 Dell Corp* 254,514
12,400 Electronic Data Systems Corp 270,692
10,000 EMC Corp* 127,500
34,200 Hewlett-Packard Co 681,264
18,000 IBM Corp 1,476,180
45,800 Intel Corp 1,310,796
6,300 Juniper Networks Inc* 108,486
15,500 Microsoft Corp 411,060
113,900 Oracle Corp* 1,455,642
10,500 Qualcomm Inc 433,440
2,400 Rockwell Automation 65,328
13,200 Tellabs Inc* 86,196
-------------
8,709,278
-------------
UTILITIES -- 10.9%
1,300 Alltel Corp 59,540
500 Ameren Corp 21,250
3,700 American Electric Power Co Inc 104,747
13,180 AT&T Corp 293,914
41,600 AT&T Wireless Services Inc* 358,592
17,000 Bellsouth Corp 428,400
6,900 Cablevision Systems Corp, Class A* 139,035
2,500 Centerpoint Energy Inc 21,225
8,100 Citizens Communications Co* 92,340
3,027 Comcast Corp, Class A* 90,053
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
UTILITIES -- CONTINUED
13,700 Comcast Corp, Special Class A* 388,532
1,400 Consolidated Edison Inc 55,342
1,700 Constellation Energy Group Inc 61,863
7,500 Cox Communications Inc, Class A* 245,400
5,900 Duke Energy Co 100,772
4,200 Edison International* 79,212
1,500 Firstenergy Corp 43,890
1,200 FPL Group Inc 74,232
2,000 Kinder Morgan Inc 106,500
18,900 Nextel Communications Inc* 364,392
13,000 PG & E Corp* 288,210
1,600 Pinnacle West Capital Corp 54,880
3,800 PPL Corp 150,746
2,500 Public Service Enterprise Group Inc 105,850
43,526 SBC Communications Inc 978,900
3,600 Sempra Energy 107,100
18,100 Sprint Corp (Fon Group) 267,337
1,600 TXU Corp 35,200
11,642 Verizon Communications Inc 411,195
7,100 Xcel Energy Inc 104,015
-------------
5,632,664
-------------
TOTAL COMMON STOCKS (COST $48,034,582) 51,000,966
-------------
SHORT-TERM INVESTMENTS -- 3.9%
CASH EQUIVALENTS -- 2.8%
332,647 Dreyfus Money Market Fund(a) 332,647
$ 777,826 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.05%, due 9/29/03(a) 777,826
320,853 Merrimac Money Market Fund(a) 320,853
-------------
1,431,326
-------------
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 1.1%
$ 560,626 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due 9/2/03, with a maturity value of $560,669
and an effective yield of 0.70%, collateralized by a
U.S. Treasury Bill with a rate of 1.175%, maturity date
of 9/25/03 and a market value of $573,028. 560,626
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,991,952) 1,991,952
-------------
TOTAL INVESTMENTS -- 102.7%
(Cost $50,026,534) 52,992,918
Other Assets and Liabilities (net) -- (2.7%) (1,403,406)
-------------
TOTAL NET ASSETS -- 100.0% $ 51,589,512
=============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</Table>
* Non-income producing security.
(a) Represents investment of security lending collateral (Note 1).
8 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$1,380,644 (cost $50,026,534) (Note 1) $52,992,918
Dividends and interest receivable 64,181
Receivable for expenses reimbursed by Manager (Note 2) 5,859
-----------
Total assets 53,062,958
-----------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 1,431,326
Payable to affiliate for (Note 2):
Management fee 13,305
Shareholder service fee 6,048
Accrued expenses 22,767
-----------
Total liabilities 1,473,446
-----------
NET ASSETS $51,589,512
===========
NET ASSETS CONSIST OF:
Paid-in capital $55,378,175
Accumulated undistributed net investment income 96,991
Accumulated net realized loss (6,852,038)
Net unrealized appreciation 2,966,384
-----------
$51,589,512
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $51,589,512
===========
SHARES OUTSTANDING:
Class III 5,104,692
===========
NET ASSET VALUE PER SHARE:
Class III $ 10.11
===========
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends $ 442,133
Interest (including securities lending income of $304) 1,311
----------
Total income 443,444
----------
EXPENSES:
Management fee (Note 2) 76,166
Audit fees 17,848
Custodian and transfer agent fees 10,398
Legal fees 920
Registration fees 644
Trustees fees and related expenses (Note 2) 582
Miscellaneous 367
Fees reimbursed by Manager (Note 2) (30,178)
----------
76,747
Shareholder service fee (Note 2) - Class III 34,621
----------
Net expenses 111,368
----------
Net investment income 332,076
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (1,448,917)
Closed futures contracts 21,628
----------
Net realized loss (1,427,289)
----------
Change in net unrealized appreciation (depreciation) on
investments 8,637,056
----------
Net realized and unrealized gain 7,209,767
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,541,843
==========
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 332,076 $ 526,010
Net realized loss (1,427,289) (4,064,109)
Change in net unrealized appreciation (depreciation) 8,637,056 (5,886,181)
----------- -----------
Net increase (decrease) in net assets from
operations 7,541,843 (9,424,280)
----------- -----------
Distributions to shareholders from:
Net investment income
Class III (339,912) (478,306)
----------- -----------
Total distributions from net investment income (339,912) (478,306)
----------- -----------
Net share transactions: (Note 5)
Class III 4,040,341 22,755,004
----------- -----------
Increase in net assets resulting from net share
transactions 4,040,341 22,755,004
----------- -----------
Total increase in net assets 11,242,272 12,852,418
NET ASSETS:
Beginning of period 40,347,240 27,494,822
----------- -----------
End of period (including accumulated undistributed
net investment income of $96,991 and $104,827,
respectively) $51,589,512 $40,347,240
=========== ===========
</Table>
See accompanying notes to the financial statements. 11
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 -------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999*
---------------- ----------- ----------- ----------- ----------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.62 $ 11.24 $ 12.08 $ 12.64 $ 10.67 $ 10.00
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.07+ 0.14+ 0.16+ 0.15+ 0.13 0.09
Net realized and unrealized gain
(loss) 1.49 (2.64) (0.86) (0.57) 1.97 0.65
------- ------- ------- ------- ------- -------
Total from investment operations 1.56 (2.50) (0.70) (0.42) 2.10 0.74
------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.07) (0.12) (0.14) (0.14) (0.13) (0.07)
------- ------- ------- ------- ------- -------
Total distributions (0.07) (0.12) (0.14) (0.14) (0.13) (0.07)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.11 $ 8.62 $ 11.24 $ 12.08 $ 12.64 $ 10.67
======= ======= ======= ======= ======= =======
TOTAL RETURN(a) 18.17%++ (22.33)% (5.78)% (3.44)% 19.83% 7.48%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $51,590 $40,347 $27,495 $11,418 $13,275 $ 8,116
Net expenses to average daily net
assets 0.48%** 0.49% 0.48% 0.48% 0.48% 0.48%**
Net investment income to average
daily net assets 1.44%** 1.41% 1.36% 1.18% 1.11% 1.30%**
Portfolio turnover rate 45%++ 63% 45% 161% 19% 33%++
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.13%** 0.16% 0.36% 0.54% 0.44% 1.47%**
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
* Period from July 23, 1998 (commencement of operations) through February
28, 1999.
** Annualized.
+ Computed using average shares outstanding throughout the period.
++ Not Annualized.
12 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Tax-Managed U.S. Equities Fund (the "Fund"), is a series of GMO Trust
(the "Trust"). The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end, non-diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund seeks high after-tax total return primarily through investment in
U.S. equity securities.
The Fund's benchmark is the S&P 500 Index (after tax), which is computed
by the Manager by applying the maximum historical applicable individual
federal tax rate to the S&P 500 Index's dividend yield and to its
estimated short-term and long-term realized capital gains (losses)
(arising from changes in the constituents of the S&P 500 Index).
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates fair value. Shares of mutual funds are
valued at their net asset value as reported on each business day.
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.
13
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. As of
August 31, 2003, the Fund held no open futures contracts.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and
14
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 the price
of the security or index underlying these transactions. As of August 31,
2003, the Fund held no open swap agreements.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
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 investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund loaned securities having a market
value of $1,380,644 collateralized by cash in the amount of $1,431,326,
which was invested in short-term investments.
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.
15
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions are paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash
distributions. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
At February 28, 2003, the Fund had capital loss carryfowards available to
offset future capital gains, if any, to the extent permitted by the Code,
of $24,242, $1,030,107 and $3,063,585 expiring in 2008, 2010 and 2011,
respectively. The Fund elected to defer to March 1, 2003 post-October
losses of $306,815.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the amortization of premiums and discounts. Non-cash
dividends, if any, are recorded at the fair market value of the securities
received. Dividends representing a return of capital are reflected as a
reduction of cost, when the amount of the return of capital is
conclusively determined. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .33% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on average daily net assets at the annual rate of .15% for Class III
shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service
16
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
fees, fees and expenses of the independent Trustees of the Trust
(including legal fees), brokerage commissions and other investment-related
costs, hedging transaction fees, extraordinary, non-recurring and certain
other unusual expenses (including taxes), securities lending fees and
expenses, interest expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $398. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $23,922,125 and $20,101,022, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$50,026,534 $4,435,039 $(1,468,655) $2,966,384
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 47.7% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
17
<Page>
GMO TAX-MANAGED U.S. EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
---------------------- ----------------------
Shares Amount Shares Amount
Class III: --------- ----------- --------- -----------
Shares sold 1,141,111 $11,221,767 2,413,324 $24,569,187
Shares issued to shareholders
in reinvestment of distributions 3,868 36,585 2,643 24,973
Shares repurchased (720,242) (7,218,011) (181,198) (1,839,156)
--------- ----------- --------- -----------
Net increase 424,737 $ 4,040,341 2,234,769 $22,755,004
========= =========== ========= ===========
</Table>
18
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------
MUTUAL FUND -- 99.2%
7,793,186 GMO Emerging Country Debt Fund, Class III (Cost
$72,738,596) 83,542,955
----------
TOTAL INVESTMENTS -- 99.2%
(Cost $72,738,596) 83,542,955
Other Assets and Liabilities (net) -- 0.8% 662,173
----------
TOTAL NET ASSETS -- 100.0% $84,205,128
==========
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $72,738,596) (Note 1) $83,542,955
Cash 516,670
Receivable for Fund shares sold 144,189
Interest receivable 91
Receivable for expenses reimbursed by Manager (Note 2) 4,402
-----------
Total assets 84,208,307
-----------
LIABILITIES:
Accrued expenses 3,179
-----------
Total liabilities 3,179
-----------
NET ASSETS $84,205,128
===========
NET ASSETS CONSIST OF:
Paid-in capital $66,744,337
Accumulated undistributed net investment income 1,096,154
Accumulated net realized gain 5,560,278
Net unrealized appreciation 10,804,359
-----------
$84,205,128
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $84,205,128
===========
SHARES OUTSTANDING:
Class III 7,519,775
===========
NET ASSET VALUE PER SHARE:
Class III $ 11.20
===========
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends from investment company shares $ 1,099,938
Interest 1,162
-----------
Total income 1,101,100
-----------
EXPENSES:
Registration fees 9,200
Audit fees 6,072
Custodian and transfer agent fees 5,743
Legal fees 1,472
Trustees fees and related expenses (Note 2) 790
Miscellaneous 644
Fees reimbursed by Manager (Note 2) (23,131)
-----------
790
-----------
Net expenses 790
-----------
Net investment income 1,100,310
-----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 3,738,361
Realized gains distributions from investment company
shares 2,569,140
-----------
Net realized gain on investments 6,307,501
-----------
Change in net unrealized appreciation (depreciation) on
investments 4,549,881
-----------
Net realized and unrealized gain 10,857,382
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $11,957,692
===========
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,100,310 $ 5,865,818
Net realized gain 6,307,501 2,449,079
Change in net unrealized appreciation (depreciation) 4,549,881 360,455
----------- ------------
Net increase in net assets from operations 11,957,692 8,675,352
----------- ------------
Distributions to shareholders from:
Net investment income
Class III (7,861) (6,495,001)
Net realized gains
Class III (133,637) --
----------- ------------
(141,498) (6,495,001)
----------- ------------
Net share transactions (Note 5):
Class III 6,248,879 (25,991,923)
----------- ------------
Net increase (decrease) in net assets resulting from
Fund share transactions 6,248,879 (25,991,923)
----------- ------------
Total increase (decrease) in net assets 18,065,073 (23,811,572)
NET ASSETS:
Beginning of period 66,140,055 89,951,627
----------- ------------
End of period (including accumulated undistributed
net investment income of $1,096,154 and $3,705,
respectively) $84,205,128 $ 66,140,055
=========== ============
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 --------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999*
---------------- ----------- ----------- ------------ ----------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.56 $ 9.25 $ 8.90 $ 8.70 $ 6.84 $ 10.00
------- ------- ------- -------- ------- -------
Income from investment operations:
Net investment income(a) 0.15++ 0.83++ 1.03++ 1.33++ 1.10 0.03
Net realized and unrealized gain
(loss) 1.51 0.57 0.51 0.23 1.97 (3.16)
------- ------- ------- -------- ------- -------
Total from investment operations 1.66 1.40 1.54 1.56 3.07 (3.13)
------- ------- ------- -------- ------- -------
Less distributions to shareholders:
From net investment income (0.00)(e) (1.09) (1.19) (1.36) (1.20) (0.03)
From net realized gains (0.02) -- -- -- (0.01) --
------- ------- ------- -------- ------- -------
Total distributions (0.02) (1.09) (1.19) (1.36) (1.21) (0.03)
------- ------- ------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 11.20 $ 9.56 $ 9.25 $ 8.90 $ 8.70 $ 6.84
======= ======= ======= ======== ======= =======
TOTAL RETURN(b) 17.34%+ 15.81% 18.47% 18.71% 46.71% (31.32)%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $84,205 $66,140 $89,952 $102,481 $86,280 $41,216
Net expenses to average daily net
assets(c) 0.00%(d)** 0.00%(d) 0.00%(d) 0.00% 0.00% 0.00%**
Net investment income to average
daily net assets(a) 2.76%** 8.88% 11.43% 14.39% 14.22% 0.64%**
Portfolio turnover rate 18%+ 30% 14% 0% 0% 0%+
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.06%** 0.08% 0.06% 0.03% 0.04% 0.09%**
</Table>
(a) Recognition of net investment income is affected by the timing of the
declaration of dividends by GMO Emerging Country Debt Fund ("ECDF").
(b) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(c) Net expenses exclude expenses incurred indirectly through investment in
ECDF. (See Note 1)
(d) The ratio of net expenses to average daily net assets was less than
0.01%.
(e) Distributions from net investment income was less than $0.01.
* Period from July 20, 1998 (commencement of operations) through February
28, 1999.
** Annualized.
+ Not Annualized.
++ Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 5
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Emerging Country Debt Share Fund (the "Fund"), is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, non-diversified management
investment company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund seeks high total return through investment in Class III Shares of
GMO Emerging Country Debt Fund ("ECDF"), a portfolio of the Trust. GMO
also serves as investment manager to ECDF. ECDF pursues its objective by
investing primarily in sovereign debt of developing countries in Asia,
Latin America, the Middle East, Africa and Europe. The Fund's benchmark is
the J.P. Morgan Emerging Markets Bond Index Global (EMBIG). The financial
statements of ECDF should be read in conjunction with the Fund's financial
statements.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States 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 ECDF are valued at their net asset value as reported on each
business day. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost, which approximates 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.
Securities held by the underlying funds 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.
6
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Certain investments in securities held by the underlying funds were valued
on the basis of a price provided by a principal market maker. The prices
provided by the principal market makers may differ from the value that
would be realized if the securities were sold and the differences could be
material to the financial statements.
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 or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. Distributions in excess of tax basis earnings and profits, if
any, are reported in the Fund's financial statements as a return of
capital.
7
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Income dividends
and capital gain distributions from ECDF are recorded on the ex-dividend
date. Interest income is recorded on the accrual basis. In determining the
net gain or loss on securities sold, the cost of securities is determined
on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. In
addition, the Fund will also incur certain fees and expenses indirectly as
a shareholder in ECDF (See Note 2).
PURCHASES AND REDEMPTIONS OF FUNDS SHARES
The Fund does not charge any purchase premium or redemption fee in
connection with the purchase and sale of Fund shares. As a shareholder in
ECDF, the Fund will indirectly bear ECDF's purchase premium and redemption
fees which are .50% and .25%, respectively. These fees are paid to and
retained by ECDF.
INVESTMENT RISK
The Fund is subject to the investment risk associated with an investment
in ECDF. Investments in emerging country debt present certain risks that
are not inherent in many other securities. Many emerging countries present
elements of political and/or economic instability, which may result in
ECDF's inability to collect on a timely basis, or in full, principal and
interest payments. Further, countries may impose various types of foreign
currency regulations or controls which may impede ECDF's ability to
repatriate amounts it receives. ECDF may acquire interests in securities
or bank loans which are in default at the time of acquisition in
anticipation of improving conditions in the related countries. These
factors may result in significant volatility in the values of its
holdings. The markets for emerging country debt are relatively illiquid.
Accordingly, ECDF may not be able to realize in an actual sale amounts
approximating those used to value its holdings. Additionally, the
investment risk associated with an investment in ECDF may be more
pronounced to the extent that ECDF engages in derivative transactions.
ECDF owns loans and bonds representing significant exposure to the risk of
default in many countries, but has the most sizable of such positions
relating to Russia and Brazil. The Fund's financial position would be
substantially adversely affected in the case of a default by either of
these countries on obligations held by the Fund, or on obligations issued
by those countries generally. The Fund has purchased default protection in
the form of credit default swap agreements with respect to both countries,
which may offset some of the losses that the Fund might experience in the
case of a default on bonds issued by such countries. However, it is
important to note that (i) such protection
8
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
would not cover losses due to defaults on loan assignments or
participations, (ii) such protection will generally not be sufficient to
cover all of the Fund's losses in the case of default, and (iii) due to
the privately negotiated nature of such instruments, under some
circumstances, the protection offered by such instruments may not be
realized, even if the Fund incurs substantial losses due to weakening of
the credit or virtual default by the countries.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The manager does not directly charge an advisory fee or shareholder
service fee. GMO, in its capacity as Manager of ECDF, earns a management
fee at the annual rate of .35% of ECDF's average daily net assets.
Additionally, Class III shares of ECDF bear a shareholder service fee at
the annual rate of .15% of ECDF's average daily net assets.
GMO has entered into a binding agreement, effective until at least
June 30, 2004, to reimburse the Fund for its total annual direct operating
expenses (excluding fees and expenses of the independent Trustees of the
Trust (including legal fees), brokerage commissions and other
investment-related costs, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses, interest expense and transfer
taxes).
The Fund incurs fees and expenses indirectly as a shareholder in ECDF. For
the six months ended August 31, 2003, the shareholder service fees
incurred indirectly by the Fund through its investment in ECDF were .149%
of the Fund's average daily net assets, indirect operating expenses
(excluding shareholder service fees and investment-related expenses) were
.423% of the Fund's average daily net assets, and indirect
investment-related expenses (including , but not limited to, interest
expense, foreign audit expense, and investment-related legal expense) were
.120% of the Fund's average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $606. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $23,634,078 and $13,800,000, respectively.
9
<Page>
GMO EMERGING COUNTRY DEBT SHARE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$73,480,653 $10,062,302 $ -- $10,062,302
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 100% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ ------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ---------- ------------
Shares sold 2,016,284 $ 21,832,970 1,532,346 $ 14,338,722
Shares issued to shareholders
in reinvestment of distributions 12,759 141,498 717,691 6,495,001
Shares repurchased (1,424,195) (15,725,589) (5,057,362) (46,825,646)
---------- ------------ ---------- ------------
Net increase (decrease) 604,848 $ 6,248,879 (2,807,325) $(25,991,923)
========== ============ ========== ============
</Table>
10
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
COMMON STOCKS -- 99.1%
AUTO & TRANSPORTATION -- 4.0%
1,900 Arctic Cat Inc 41,496
5,425 ArvinMeritor Inc 102,098
800 Autoliv Inc 24,168
1,300 BorgWarner Inc 92,586
4,100 Cooper Tire & Rubber Co 73,800
6,000 Kansas City Southern* 72,900
1,100 Keystone Automotive Industries Inc* 23,078
3,800 Lear Corp* 211,090
3,000 Offshore Logistics Inc* 64,080
1,200 P.A.M. Transportation Services* 27,300
500 Polaris Industries Inc 38,630
900 Tidewater Inc 25,848
1,200 USF Corp 38,220
-------------
835,294
-------------
CONSUMER DISCRETIONARY -- 20.2%
3,700 Abercrombie & Fitch Co, Class A* 112,628
900 Advo Inc* 39,735
4,900 Allied Waste Industries Inc* 54,194
3,400 American Eagle Outfitters Inc* 58,344
3,000 American Greetings Corp, Class A* 55,500
3,100 Applebees International Inc 99,634
1,300 Ask Jeeves Inc* 23,673
1,900 Banta Corp 65,987
3,100 BJ's Wholesale Club Inc* 67,704
1,500 Blyth Inc 42,120
1,800 Bob Evans Farms Inc 48,654
1,000 Bombay Co Inc* 9,890
750 Brightpoint Inc* 20,055
5,900 Callaway Golf Co 88,677
800 Career Education Corp* 36,104
1,700 Central Garden and Pet Co* 47,311
1,800 Children's Place* 37,368
900 Claire's Stores Inc 31,095
200 Coach Inc* 11,608
1,300 Columbia Sportswear Co* 66,300
2,700 Consolidated Graphics Inc* 66,771
900 Corinthian Colleges Inc* 51,795
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
1,900 Corrections Corp of America, REIT* 43,700
3,900 DoubleClick Inc* 43,953
3,500 Dress Barn Inc* 45,150
7,900 EarthLink Inc* 59,961
400 Ethan Allen Interiors Inc 15,484
1,900 Fisher Scientific International* 74,518
900 Foot Locker Inc 14,913
1,600 Fossil Inc* 44,896
2,200 G TECH Holdings Corp 93,236
2,000 Genesco Inc* 35,140
700 Getty Images Inc* 28,560
1,600 Global Imaging Systems Inc* 41,136
900 Group 1 Automotive Inc* 33,885
6,700 IKON Office Solutions Inc 48,307
1,700 Infospace Inc* 26,860
3,300 infoUSA Inc* 30,789
1,300 Iron Mountain Inc* 48,100
1,600 Isle of Capris Casinos Inc* 30,080
2,100 ITT Educational Services Inc* 91,035
3,800 Jack in the Box Inc* 80,522
2,700 Lone Star Steakhouse & Saloon Inc 58,482
1,400 Maximus Inc* 50,148
400 Maytag Corp 10,840
3,100 MPS Group Inc* 29,605
1,500 Neiman Marcus Group Inc, Class A* 63,900
5,500 Nu Skin Enterprises Inc 62,150
1,400 Outback Steakhouse Inc 54,110
2,400 Pacific Sunwear of California* 81,120
1,200 Papa Johns International Inc* 30,240
7,500 Payless ShoeSource Inc* 110,550
3,600 Pier 1 Imports Inc 74,052
1,300 Pixar Inc* 94,679
3,000 Polo Ralph Lauren Corp 87,900
1,500 Prime Hospitality Corp* 13,425
2,500 Reebok International Ltd 83,625
500 Regis Corp 17,295
1,300 Rent-A-Center Inc* 104,481
1,800 Rex Stores Corp* 25,470
1,500 RH Donnelley Corp* 62,100
2,300 Ross Stores Inc 115,874
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
4,400 Ryan's Family Steak Houses Inc* 58,872
900 Shoe Carnival Inc* 14,400
2,000 Shopko Stores Inc* 27,540
1,400 Snap-On Inc 41,300
3,200 Sonic Automotive Inc 88,000
4,100 Spherion Corp* 28,495
1,000 Station Casinos Inc 29,750
1,400 Steinway Musical Instruments* 23,380
2,500 Steven Madden Ltd* 52,250
2,000 Stewart Enterprises Inc, Class A* 8,240
2,600 Tech Data Corp* 86,710
1,700 Tetra Tech Inc* 32,521
2,100 Tivo Inc* 22,827
2,900 Tupperware Corp 47,357
1,500 United Automotive Group Inc* 38,400
2,400 United Stationers Inc* 97,536
900 Universal Electronics Inc* 11,951
7,500 VeriSign Inc* 112,275
500 Waste Connections Inc* 17,615
2,000 Whitehall Jewellers Inc* 21,100
2,000 World Fuel Services Corp 54,500
-------------
4,210,437
-------------
CONSUMER STAPLES -- 2.3%
900 Constellation Brands Inc, Class B* 25,848
1,200 Dean Foods Co* 34,860
1,700 Ingles Markets Inc, Class A 16,471
1,200 Natures Sunshine Products Inc 10,164
6,700 PepsiAmericas Inc 93,264
300 Sanderson Farms Inc 8,985
2,800 Smithfield Foods Inc* 56,700
2,000 Standard Commercial Corp 36,000
3,600 Supervalu Inc 86,760
1,800 Universal Corp 75,420
3,200 Winn-Dixie Stores Inc 32,160
-------------
476,632
-------------
FINANCIAL SERVICES -- 23.7%
1,100 Amcore Financial Inc 27,060
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
3,100 American Financial Group Inc 67,828
1,300 Americredit* 13,949
2,500 Ameritrade Holding Corp* 27,175
3,700 AmerUs Group Co 119,251
1,300 Associated Banc Corp 49,621
3,000 Astoria Financial Corp 96,420
1,500 Bank of Hawaii Corp 50,850
600 Bedford Property Investors, REIT 15,720
1,051 BOK Financial Corp* 41,641
1,700 Capstead Mortgage Corp, REIT 21,114
1,000 CBL & Associates Properties Inc, REIT 48,970
5,600 Checkfree Corp* 128,688
1,700 Chelsea Property Group Inc 78,115
1,200 Citizens Banking Corp Michigan 31,200
4,800 Colonial BancGroup Inc 70,320
1,900 Commerce Group Inc 69,863
2,400 Commercial Federal Corp 59,520
2,000 Commercial Net Lease Realty Inc, REIT 33,660
1,700 Community First Bankshares 48,025
1,210 Community Trust Bancorp 35,586
1,136 Delphi Financial Group Inc, Class A 54,596
1,550 Doral Financial Corp 63,627
2,000 Downey Financial Corp 84,540
1,300 Entertainment Properties Trust, REIT 40,625
2,250 Equity One Inc, REIT 38,362
2,800 eSPEED Inc* 63,840
1,200 Factset Research Systems Inc 58,260
1,200 Fair Isaac Corp 70,320
7,756 Fidelity National Financial Inc 224,148
5,000 First American Corp 120,900
1,550 First Bancorp Puerto Rico 47,601
400 First Citizens Bancshares, Class A 42,892
800 First Industrial Realty Trust, REIT 24,360
2,000 First Niagara Financial Group Inc 30,060
2,500 Firstmerit Corp 63,325
3,600 Flagstar Bancorp Inc 70,308
5,100 Fremont General Corp 65,688
3,700 GATX Corp 78,366
600 GBC Bancorp (California) 23,316
1,700 General Growth Properties, REIT 117,895
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
1,785 German American Bancorp 32,880
660 Glacier Bancorp Inc 17,860
1,600 Glenborough Realty Trust Inc, REIT 29,360
3,100 Greater Bay Bancorp 63,767
2,700 Hibernia Corp, Class A 56,025
1,800 Highwood Properties Inc, REIT 41,310
12,800 HRPT Properties Trust, REIT 116,096
900 Hudson United Bancorp 35,541
2,200 Impac Mortgage Holdings Inc, REIT 33,198
1,600 IndyMac Bancorp Inc, REIT 36,896
2,400 Interpool Inc 43,560
900 Kansas City Life Insurance Co 39,600
1,300 Kimco Realty Corp 54,184
4,900 La Quinta Corp, REIT* 26,656
1,700 Landamerica Financial Group Inc 78,030
1,700 Lasalle Hotel Properties, REIT 28,050
2,000 Lexington Corporate Properties Trust, REIT 36,920
1,100 Liberty Property Trust 38,313
2,400 Mack-Cali Realty Corp, REIT 88,320
1,000 MAF Bancorp Inc 38,200
1,800 Meristar Hospitality Corp, REIT 11,862
2,900 National Health Investors, REIT 58,986
1,800 Nationwide Financial Services, Class A 53,100
1,950 New Century Financial Corp 47,522
500 Novastar Financial Inc, REIT 27,125
1,400 Pacific Capital Bancorp 46,256
1,000 Prentiss Properties Trust, REIT 30,050
2,800 Protective Life Corp 81,452
400 Provident Bankshares Corp 11,440
1,300 Provident Financial Group 34,723
14,600 Providian Financial Corp* 149,650
800 Redwood Trust Inc, REIT 34,560
500 Regency Centers Corp 17,640
1,500 Reinsurance Group of America Inc 56,730
1,600 Riggs National Corp 25,184
2,600 Ryder System Inc 78,078
2,200 Seacoast Banking Corp of Florida 38,588
1,000 Sovran Self Storage, REIT 31,030
500 Staten Island Bancorp Inc 10,390
900 Stewart Information Services Corp* 26,334
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
900 Student Loan Group 110,664
710 Texas Regional Bancshares, Class A 23,927
1,400 Trustmark Corp 36,792
1,400 UCBH Holdings Inc 44,786
300 United Bankshares Inc 9,213
2,100 United Rentals Inc* 35,448
2,400 Ventas Inc, REIT 40,584
4,090 Washington Federal Inc 103,722
1,000 Webster Financial Corp 38,950
1,300 Weingarten Realty Investors, REIT 58,188
1,600 WFS Financial Inc* 62,432
600 Wintrust Financial Corp 21,216
700 WSFS Financial Corp 30,590
-------------
4,939,583
-------------
HEALTH CARE -- 12.4%
600 Able Laboratories Inc* 14,274
400 AdvancePCS* 16,072
1,300 American Medical Security Group Inc* 26,260
1,900 American Pharmaceutical Partners Inc* 90,516
3,400 Amylin Pharmaceuticals Inc* 97,070
700 Barr Laboratories Inc* 47,369
3,200 Beverly Enterprises Inc* 20,800
900 Biosite Inc* 41,760
2,300 Celgene Corp* 88,527
1,000 Charles River Laboratories International Inc* 35,750
1,600 CIMA Labs Inc* 43,184
2,200 Cooper Cos Inc 81,598
5,100 Corixa Corp* 40,545
3,600 Covance Inc* 75,060
1,000 Coventry Health Care Inc* 46,940
2,100 Cyberonics* 57,813
5,200 Cytyc Corp* 68,016
1,200 Digene Corp* 45,612
1,200 Esperion Therapeutics Inc* 21,708
4,700 Humana Inc* 82,673
700 ICOS Corp* 27,258
1,500 IDEXX Laboratories Inc* 62,415
800 Immucor Inc* 20,000
3,400 InterMune Inc* 64,736
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
HEALTH CARE -- CONTINUED
400 Invacare Corp 15,188
1,900 Invitrogen Corp* 109,573
5,800 Ivax Corp* 114,840
1,000 Kensey Nash Corp* 27,850
2,500 Lincare Holdings Inc* 86,575
3,900 Medicines Co* 111,735
200 Medicis Pharmaceutical Corp 12,216
200 Mid Atlantic Medical Services Inc* 9,812
1,200 Neurocrine Biosciences Inc* 64,212
2,025 Odyssey HealthCare Inc* 62,026
2,400 Pacificare Health Systems Inc* 119,520
1,900 Pharmaceutical Resources Inc* 106,286
1,300 PolyMedica Corp 58,526
600 Possis Medical Inc* 11,172
1,500 Regeneration Technologies Inc* 22,950
2,300 Res-Care Inc* 15,111
1,500 Select Medical Corp* 43,200
1,100 Steris Corp* 25,762
1,300 SurModics Inc* 43,628
2,700 Thoratec Corp* 40,527
1,000 United Therapeutics Corp* 22,920
1,600 Varian Medical Systems Inc* 89,360
3,300 Watson Pharmaceutical Inc* 135,630
2,800 WebMD Corp* 28,840
-------------
2,593,415
-------------
MATERIALS & PROCESSING -- 5.6%
2,600 Ashland Inc 85,956
400 Barnes Group Inc 10,100
1,900 Caraustar Industries Inc* 16,207
700 Cleveland Cliffs Inc* 18,130
3,000 Commercial Metals Co 59,340
2,000 Cytec Industries Inc* 74,980
800 Harsco Corp 31,192
800 Hughes Supply Inc 28,400
3,900 Lafarge Corp 133,536
800 LNR Property Corp 32,000
1,300 Lubrizol Corp 44,200
6,200 Owens Illinois Inc* 70,990
3,700 Precision Castparts Corp 130,980
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- CONTINUED
1,100 Quanex Corp 38,445
1,300 Sealed Air Corp* 63,258
900 Sigma Aldrich Corp 49,275
300 Silgan Holdings Inc* 9,570
1,800 Sonoco Products Co 40,986
1,900 The Shaw Group Inc* 16,834
700 Trex Company Inc* 25,340
2,600 Unifi Inc* 17,914
600 URS Corp* 13,698
1,000 USG Corp* 16,660
1,500 Wilson Greatbatch Technologies Inc* 59,355
2,300 York International Corp 74,244
-------------
1,161,590
-------------
OTHER -- 0.9%
1,200 FMC Corp* 29,868
1,400 Imco Recycling Inc* 10,332
3,200 Kaman Corp, Class A 41,280
2,000 Lancaster Colony Corp 79,540
400 Sequa Corp, Class A* 17,560
-------------
178,580
-------------
OTHER ENERGY -- 3.4%
12,000 Calpine Corp* 67,680
12,600 Chesapeake Energy Corp 136,584
2,600 Comstock Resources Inc* 38,610
32 Cross Timbers Royalty Trust 705
2,900 Denbury Resources Inc* 38,135
900 Evergreen Resources Inc* 50,283
2,800 Harvest Natural Resources Inc* 16,212
2,400 Holly Corp 58,992
1,700 Patina Oil & Gas Corp 62,985
2,100 Peabody Energy Corp 66,465
1,500 Pogo Producing Co 68,940
3,700 TransMontaigne Inc* 22,015
4,266 XTO Energy Inc 89,543
-------------
717,149
-------------
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
PRODUCER DURABLES -- 8.4%
5,000 American Power Conversion Corp 89,600
2,500 American Tower Corp* 28,450
1,100 Ametek Inc 46,156
400 Applied Films Corp* 12,520
1,000 Beazer Homes USA Inc* 83,120
600 Belden Inc 11,004
2,600 Centex Corp 196,092
3,100 Crown Castle International Corp* 33,325
1,200 Dionex Corp* 47,016
600 Engineered Support Systems 35,196
3,300 General Cable Corp* 29,799
700 Hovnanian Enterprises Inc* 43,169
3,300 Interdigital Communications Corp* 58,575
2,500 KB HOME 143,050
600 Kimball International, Class B 9,126
600 M/I Schottenstein Homes Inc 26,028
1,940 MDC Holdings Inc 99,115
1,000 Meritage Corporation* 44,960
200 NVR Inc* 86,700
3,200 Plantronics Inc* 80,864
1,400 Pulte Homes Inc 93,184
1,800 Ryland Group Inc 120,888
2,300 Standard Pacific Corp 81,742
1,500 Standex International Corp 34,350
300 Tecumseh Products Co, Class A 11,766
400 Tecumseh Products Co, Class B 15,040
4,400 Toll Brothers Inc* 130,768
2,100 Watts Industries Inc 38,556
500 William Lyon Homes* 18,675
1,500 Zomax Inc* 6,375
-------------
1,755,209
-------------
TECHNOLOGY -- 13.0%
3,500 Adaptec Inc* 25,585
1,300 Adtran Inc 71,240
1,700 American Management Systems Inc* 24,395
700 Analogic Corp 36,057
1,100 Anteon International Corp* 35,783
1,600 Avaya Inc* 16,720
2,700 Avid Technology Inc* 134,055
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
800 Black Box Corp 37,680
2,700 Ciber Inc* 28,782
10,600 Ciena Corp* 68,900
4,900 Citrix Systems Inc* 100,891
1,400 Cognizant Technology Solutions Corp* 48,762
10,100 Compuware Corp* 60,095
4,100 Comverse Technology Inc* 67,609
9,200 Cray Inc* 116,564
3,400 Digital River Inc* 90,712
3,200 Electronics for Imaging Inc* 68,544
9,100 Foundry Networks Inc* 176,995
2,700 Hutchinson Technology Inc* 85,401
700 j2 Global Communications Inc* 43,904
6,200 Juniper Networks Inc* 106,764
4,000 Kemet Corp* 49,040
4,700 Manufacturers Services Ltd* 24,205
2,800 McDATA Corp* 28,420
2,600 Mercury Computer Systems Inc* 57,200
1,000 Microsemi Corp* 19,770
300 MicroStrategy Inc* 12,138
4,900 NetScreen Technologies Inc* 117,257
1,800 Pixelworks Inc* 17,046
5,100 Quest Software Inc* 54,111
4,200 Rambus Inc* 69,972
1,800 RSA Security Inc* 21,744
2,900 Scientific Atlanta Inc 98,600
1,300 Siliconix Inc* 67,730
12,100 Skyworks Solutions Inc* 137,214
3,700 Sonus Networks Inc* 26,270
3,000 SPSS Inc* 58,170
2,300 Syntel Inc 58,579
1,300 Talx Corp 27,509
7,200 Tekelec* 125,856
3,800 Trimble Navigation Ltd* 101,650
500 Utstarcom Inc* 21,480
800 Verint Systems Inc* 18,112
2,600 Western Digital Corp* 29,874
2,800 White Electronic Designs Corp* 33,936
-------------
2,721,321
-------------
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
UTILITIES -- 5.2%
4,800 AES Corp* 31,104
2,500 Alliant Energy Corp 52,325
3,200 Boston Communications Group* 43,040
1,200 Cablevision Systems Corp, Class A* 24,180
5,300 Cincinnati Bell Inc* 29,945
6,000 Citizens Communications Co* 68,400
3,500 DPL Inc 54,075
1,000 DQE Inc 14,750
3,900 El Paso Electric Co* 43,485
1,800 Energen Corp 64,224
600 Great Plains Energy Inc 17,376
700 Hawaiian Electric Industries Inc 30,086
300 MDU Resources Group Inc 10,185
2,700 National Fuel Gas Co 62,505
800 NSTAR 35,680
2,400 OGE Energy Corp 52,152
1,300 Oneok Inc 27,287
200 Peoples Energy Corp 8,030
2,300 PNM Resources Inc 63,020
1,700 Primus Telecommunications Group* 13,022
1,900 Puget Energy Inc 41,420
1,800 Questar Corp 57,744
1,200 SCANA Corp 40,800
2,000 Teco Energy Inc 23,660
1,950 UGI Corp 59,573
800 UIL Holdings Corp 28,840
2,100 Western Wireless Corp* 38,808
1,400 Wisconsin Energy Corp 40,796
-------------
1,076,512
-------------
TOTAL COMMON STOCKS (COST $15,610,711) 20,665,722
-------------
SHORT-TERM INVESTMENTS -- 7.9%
CASH EQUIVALENTS -- 7.0%
335,673 Dreyfus Money Market Fund(a) 335,673
$ 784,902 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.05%, due 9/29/03(a) 784,902
323,772 Merrimac Money Market Fund(a) 323,772
-------------
1,444,347
-------------
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 0.9%
$ 192,218 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due 9/02/03, with a maturity value of
$192,233, and an effective yield of 0.70%,
collateralized by a U.S. Treasury Bill with a rate of
1.175%, maturity date of 9/25/03, and a market value of
$196,887. 192,218
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,636,565) 1,636,565
-------------
TOTAL INVESTMENTS -- 107.0%
(Cost $17,247,276) 22,302,287
Other Assets and Liabilities (net) -- (7.0%) (1,459,291)
-------------
TOTAL NET ASSETS -- 100.0% $ 20,842,996
=============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</Table>
<Table>
REIT - Real Estate Investment Trust
</Table>
* Non-income producing security.
(a) Represents investment of security lending collateral (Note 1).
12 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$1,384,820 (cost $17,247,276) (Note 1) $22,302,287
Dividends and interest receivable 21,099
Receivable for expenses reimbursed by Manager (Note 2) 5,425
-----------
Total assets 22,328,811
-----------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 1,444,347
Payable to affiliate for (Note 2):
Management fee 9,332
Shareholder service fee 2,545
Accrued expenses 29,591
-----------
Total liabilities 1,485,815
-----------
NET ASSETS $20,842,996
===========
NET ASSETS CONSIST OF:
Paid-in capital $22,112,834
Accumulated undistributed net investment income 27,696
Accumulated net realized loss (6,352,545)
Net unrealized appreciation 5,055,011
-----------
$20,842,996
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $20,842,996
===========
SHARES OUTSTANDING:
Class III 1,654,775
===========
NET ASSET VALUE PER SHARE:
Class III $ 12.60
===========
</Table>
See accompanying notes to the financial statements. 13
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $142) $ 162,438
Interest (including securities lending income of $3,800) 4,780
----------
Total income 167,218
----------
EXPENSES:
Management fee (Note 2) 60,759
Audit fees 17,664
Custodian and transfer agent fees 13,324
Registration fees 1,564
Legal fees 460
Trustees fees and related expenses (Note 2) 291
Miscellaneous 180
Fees reimbursed by Manager (Note 2) (33,196)
----------
61,046
Shareholder service fee (Note 2) - Class III 16,571
----------
Net expenses 77,617
----------
Net investment income 89,601
----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 1,605,693
----------
Change in net unrealized appreciation (depreciation) on
investments 4,362,157
----------
Net realized and unrealized gain 5,967,850
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,057,451
==========
</Table>
14 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 89,601 $ 265,960
Net realized gain 1,605,693 1,866,002
Change in net unrealized appreciation (depreciation) 4,362,157 (7,054,887)
----------- ------------
Net increase (decrease) in net assets from
operations 6,057,451 (4,922,925)
----------- ------------
Distributions to shareholders from:
Net investment income
Class III (61,905) (261,359)
----------- ------------
Total distributions from net investment income (61,905) (261,359)
----------- ------------
Net share transactions (Note 5):
Class III (5,875,726) (11,636,058)
----------- ------------
Decrease in net assets resulting from net share
transactions (5,875,726) (11,636,058)
----------- ------------
Total increase (decrease) in net assets 119,820 (16,820,342)
NET ASSETS:
Beginning of period 20,723,176 37,543,518
----------- ------------
End of period (including accumulated undistributed
net investment income of $27,696 and $0,
respectively) $20,842,996 $ 20,723,176
=========== ============
</Table>
See accompanying notes to the financial statements. 15
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 -------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000*
---------------- ------------ ----------- ----------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.66 $ 11.76 $ 10.54 $ 9.52 $ 10.00
------- ------------ ------- ------- -------
Income from investment operations:
Net investment income 0.04+ 0.11 0.15 0.12 0.08
Net realized and unrealized gain
(loss) 2.93 (2.10) 1.23 1.02 (0.50)
------- ------------ ------- ------- -------
Total from investment operations 2.97 (1.99) 1.38 1.14 (0.42)
------- ------------ ------- ------- -------
Less distributions to shareholders:
From net investment income (0.03) (0.11) (0.16) (0.12) (0.06)
------- ------------ ------- ------- -------
Total distributions (0.03) (0.11) (0.16) (0.12) (0.06)
------- ------------ ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 12.60 $ 9.66 $ 11.76 $ 10.54 $ 9.52
======= ============ ======= ======= =======
TOTAL RETURN(a) 30.82%++ (17.00)% 13.25% 12.12% (4.25)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $20,843 $ 20,723 $37,544 $41,042 $39,000
Net expenses to average daily net
assets 0.70%** 0.71% 0.70% 0.70% 0.70%**
Net investment income to average
daily net assets 0.81%** 0.90% 1.30% 1.25% 1.08%**
Portfolio turnover rate 38%++ 55% 65% 131% 18%++
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.30%** 0.18% 0.20% 0.17% 0.21%**
Purchase and redemption fees
consisted of the following per
share amounts:(b) -- $ 0.01 --(c) $ 0.01 N/A
</Table>
(a) The total return would have been lower had certain expenses not been
reimbursed during the period shown. Calculation excludes purchase
premiums.
(b) Effective March 1, 2000, the Fund adopted the provisions of the revised
AICPA Audit and Accounting Guide for Investment Companies which requires
the disclosure of the per share effect of purchase and redemption fees.
Periods prior to March 1, 2000 have not been restated to reflect this
change. Amounts calculated using average shares outstanding throughout
the period.
(c) Purchase premiums were less than $0.01 per share.
* Period from June 1, 1999 (commencement of operations) through
February 29, 2000.
** Annualized.
+ Computed using average shares outstanding throughout the period.
++ Not Annualized.
16 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Tax-Managed Small Companies Fund (the "Fund"), is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, non-diversified management
investment company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund seeks to maximize after-tax total return through investment in a
portfolio of common stocks of smaller companies principally traded in the
U.S.
The Fund's benchmark is the Russell 2500 Index (after tax), which is
computed by the Manager by applying the maximum historical applicable
individual federal income tax rate to the Russell 2500 Index's dividend
yield.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates fair value. Shares of mutual funds are
valued at their net asset value as reported on each business day.
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.
17
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. At August 31,
2003, the Fund held no open futures contracts.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and
18
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 the price
of the security or index underlying these transactions. As of August 31,
2003, the Fund held no open swap agreements.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
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 investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund loaned securities having a market
value of $1,384,820 collateralized by cash in the amount of $1,444,347,
which was invested in short-term investments.
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.
19
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions are paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash
distributions. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
At February 28, 2003, the Fund had capital loss carryforwards available to
offset future capital gains, if any, to the extent permitted by the Code,
of $640,309, $5,176,933, $1,587,943 and $393,614 expiring in 2008, 2009,
2010 and 2011, respectively. The Fund elected to defer to March 1, 2003
post-October losses of $159,438.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the amortization of premiums and discounts. Non-cash
dividends, if any, are recorded at the fair market value of the securities
received. Dividends representing a return of capital are reflected as a
reduction of cost, when the amount of the return of capital is
conclusively determined. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .50% of the amount
invested. If the Manager determines that any portion of a cash purchase is
offset by a corresponding cash redemption occurring on the same day, the
purchase premium charged by the Fund will be reduced by 100% with respect
to that portion. In addition, the purchase premium charged by the Fund may
be waived if the Manager determines the Fund is substantially
underweighted in cash so that a purchase will not require a securities
transaction. All purchase premiums are paid and recorded by the Fund as
20
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
paid-in capital. For the six months ended August 31, 2003 and the year
ended February 28, 2003, the fund received $0 and $15,074 in purchase
premiums, respectively. There is no fee for redemptions, reinvested
distributions or in-kind transactions.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .55% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $199. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $8,354,461 and $14,256,187, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$17,247,276 $5,230,016 $(175,005) $5,055,011
</Table>
21
<Page>
GMO TAX-MANAGED SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 60.1% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
--------------------- ------------------------
Shares Amount Shares Amount
-------- ----------- ---------- ------------
Class III:
Shares sold -- $ -- 317,367 $ 3,014,863
Shares issued to shareholders in reinvestment
of distributions 2,950 32,367 15,201 154,941
Shares repurchased (493,952) (5,908,093) (1,378,358) (14,805,862)
-------- ----------- ---------- ------------
Net decrease (491,002) $(5,875,726) (1,045,790) $(11,636,058)
======== =========== ========== ============
</Table>
22
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
COMMON STOCKS -- 94.2%
AUTO & TRANSPORTATION -- 1.9%
9,900 Tidewater Inc 284,328
13,800 Union Pacific Corp 840,972
------------
1,125,300
------------
CONSUMER DISCRETIONARY -- 6.7%
83,600 AOL Time Warner Inc* 1,367,696
48,700 Cendant Corp* 875,626
14,300 Federated Department Stores Inc 624,910
5,900 Home Depot Inc 189,744
13,600 Jones Apparel Group Inc 420,104
5,300 Omnicom Group 413,930
------------
3,892,010
------------
CONSUMER STAPLES -- 8.4%
37,900 Altria Group Inc 1,562,238
15,200 Constellation Brands Inc, Class A* 437,000
23,700 CVS Corp 772,620
25,300 Pepsico Bottling Group Inc 610,236
13,400 Safeway Inc* 327,094
62,200 Sara Lee Corp 1,180,556
------------
4,889,744
------------
FINANCIAL SERVICES -- 29.5%
15,300 Allstate Corp 546,975
12,100 Bank of America Corp 958,925
18,700 Bank One Corp 738,089
8,400 Bear Stearns Cos Inc 587,832
43,100 Citigroup Inc 1,868,385
13,700 CNA Financial Corp* 297,975
12,900 Fannie Mae 835,791
14,700 First Data Corp 564,480
41,300 FleetBoston Financial Corp 1,222,067
28,100 Freddie Mac 1,493,515
12,600 IndyMac Bancorp Inc, REIT 290,556
35,000 J.P. Morgan Chase & Co 1,197,700
10,700 Merrill Lynch & Co Inc 575,446
10,200 MetLife Inc 289,884
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
16,400 Morgan Stanley 800,156
34,900 Sovereign Bancorp Inc 686,832
138,500 Travelers Property Casualty Corp, Class A 2,131,515
35,700 Unumprovident Corp 503,370
16,500 US Bancorp 394,350
9,900 Wachovia Corp 417,285
18,500 Washington Mutual Inc 721,130
------------
17,122,258
------------
HEALTH CARE -- 8.5%
5,200 Cardinal Health Inc 296,036
5,900 Guidant Corp 296,180
42,200 Merck & Co Inc 2,123,504
73,900 Pfizer Inc 2,211,088
------------
4,926,808
------------
INTEGRATED OILS -- 9.1%
27,200 ConocoPhillips 1,518,848
48,900 Exxon Mobil Corp 1,843,530
55,800 Occidental Petroleum Corp 1,915,614
------------
5,277,992
------------
MATERIALS & PROCESSING -- 1.8%
11,000 Cabot Corp 299,090
12,100 Engelhard Corp 339,647
13,800 Hercules Inc* 154,560
18,700 OM Group Inc* 252,076
------------
1,045,373
------------
OTHER -- 2.9%
39,300 Honeywell International Inc 1,139,307
27,300 Tyco International Ltd 561,834
------------
1,701,141
------------
OTHER ENERGY -- 5.7%
15,800 Anadarko Petroleum Corp 687,300
6,200 Apache Corp 427,676
40,000 El Paso Corp 293,600
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
OTHER ENERGY -- CONTINUED
7,100 Pogo Producing Co 326,316
25,200 Valero Energy Corp 992,880
59,700 Williams Cos Inc 545,061
------------
3,272,833
------------
PRODUCER DURABLES -- 2.7%
12,400 Boeing Co 463,636
5,800 Centex Corp 437,436
6,750 DR Horton Inc 210,060
2,400 Lennar Corp 161,400
3,200 Northrop Grumman Corp 305,536
------------
1,578,068
------------
TECHNOLOGY -- 6.4%
5,400 General Dynamics Corp 464,994
28,400 Hewlett-Packard Co 565,728
26,800 Microsoft Corp 710,736
95,600 Oracle Corp* 1,221,768
22,800 Raytheon Co 730,968
------------
3,694,194
------------
UTILITIES -- 10.6%
5,100 American Electric Power Co Inc 144,381
59,700 Bellsouth Corp 1,504,440
27,300 NiSource Inc 527,982
57,800 Qwest Communications International Inc* 257,210
59,000 SBC Communications Inc 1,326,910
15,000 Sempra Energy 446,250
55,600 Verizon Communications Inc 1,963,792
------------
6,170,965
------------
TOTAL COMMON STOCKS (COST $49,765,575) 54,696,686
------------
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 6.0%
REPURCHASE AGREEMENTS -- 6.0%
$ 2,888,622 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due 9/02/03, with a maturity value of
$2,888,847, and an effective yield of 0.70%,
collateralized by a U.S. Treasury Bill with a rate of
1.175%, maturity date of 9/25/03 and a market value,
including accrued interest of $3,036,559. 2,888,622
$ 587,080 Morgan Stanley Repurchase Agreement, dated 8/29/03, due
9/02/03, with a maturity value of $587,125 and an
effective yield of 0.70%, collateralized by a U.S.
Treasury Bond with a rate of 6.625%, maturity date of
2/15/27 and market value, including accrued interest of
$602,148. 587,080
------------
3,475,702
------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,475,702) 3,475,702
------------
TOTAL INVESTMENTS -- 100.2%
(Cost $53,241,277) 58,172,388
Other Assets and Liabilities (net) -- (0.2%) (135,349)
------------
TOTAL NET ASSETS -- 100.0% $ 58,037,039
============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</Table>
* Non-income producing security.
4 See accompanying notes to the financial statements.
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $53,241,277) (Note 1) $58,172,388
Receivable for investments sold 94,451
Receivable for Fund shares sold 4,538
Dividends and interest receivable 86,261
Receivable for expenses reimbursed by Manager (Note 2) 8,246
-----------
Total assets 58,365,884
-----------
LIABILITIES:
Payable for investments purchased 271,870
Payable to affiliate for (Note 2):
Management fee 22,879
Shareholder service fee 6,401
12b-1 fee - Class M 3,684
Administration fee - Class M 1,413
Accrued expenses 22,598
-----------
Total liabilities 328,845
-----------
NET ASSETS $58,037,039
===========
NET ASSETS CONSIST OF:
Paid-in capital $115,856,130
Accumulated undistributed net investment income 158,569
Accumulated net realized loss (62,908,771)
Net unrealized appreciation 4,931,111
-----------
$58,037,039
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $49,447,913
===========
Class M shares $ 8,589,126
===========
SHARES OUTSTANDING:
Class III 6,204,130
===========
Class M 1,079,670
===========
NET ASSET VALUE PER SHARE:
Class III $ 7.97
===========
Class M $ 7.96
===========
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends $ 765,590
Interest (including securities lending income of $294) 4,861
-----------
Total income 770,451
-----------
EXPENSES:
Management fee (Note 2) 147,702
Custodian and transfer agent fees 26,224
Audit fees 21,528
Registration fees 7,268
Legal fees 2,024
Trustees fees and related expenses (Note 2) 1,140
Miscellaneous 828
Fees reimbursed by Manager (Note 2) (57,872)
-----------
148,842
Shareholder service fee (Note 2) - Class III 42,546
-----------
12b-1 fee (Note 2) - Class M 9,362
-----------
Administration fee (Note 2) - Class M 7,490
-----------
Net expenses 208,240
-----------
Net investment income 562,211
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (13,722,325)
Closed futures contracts 43,909
-----------
Net realized loss (13,678,416)
-----------
Change in net unrealized appreciation (depreciation) on
investments 16,477,303
-----------
Net realized and unrealized gain 2,798,887
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,361,098
===========
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 562,211 $ 3,509,590
Net realized loss (13,678,416) (37,323,839)
Change in net unrealized appreciation (depreciation) 16,477,303 (15,408,843)
------------- ------------
Net increase (decrease) in net assets from
operations 3,361,098 (49,223,092)
------------- ------------
Distributions to shareholders from:
Net investment income
Class III (419,005) (3,347,011)
Class M (34,129) (69,858)
------------- ------------
Total distributions from net investment income (453,134) (3,416,869)
------------- ------------
(453,134) (3,416,869)
------------- ------------
Net share transactions (Note 5):
Class III (115,728,392) (17,609,557)
Class M 950,247 7,381,915
------------- ------------
Decrease in net assets resulting from net share
transactions (114,778,145) (10,227,642)
------------- ------------
Total decrease in net assets (111,870,181) (62,867,603)
NET ASSETS:
Beginning of period 169,907,220 232,774,823
------------- ------------
End of period (including accumulated undistributed
net investment income of $158,569 and $49,492,
respectively) $ 58,037,039 $169,907,220
============= ============
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 --------------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.73 $ 8.82 $ 9.57 $ 7.98 $ 10.40 $ 14.33
------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.07 0.14 0.18 0.18 0.21 0.26
Net realized and unrealized gain
(loss) 1.22 (2.10) (0.51) 2.32 (0.83) 0.13
------- -------- -------- -------- -------- --------
Total from investment operations 1.29 (1.96) (0.33) 2.50 (0.62) 0.39
------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.05) (0.13) (0.17) (0.18) (0.23) (0.27)
From net realized gains -- -- (0.25) (0.73) (1.57) (4.05)
------- -------- -------- -------- -------- --------
Total distributions (0.05) (0.13) (0.42) (0.91) (1.80) (4.32)
------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 7.97 $ 6.73 $ 8.82 $ 9.57 $ 7.98 $ 10.40
======= ======== ======== ======== ======== ========
TOTAL RETURN(a) 19.16%** (22.29)% (3.64)% 32.72% (8.45)% 2.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $49,448 $163,463 $232,289 $247,971 $178,329 $202,842
Net expenses to average daily net
assets 0.61%* 0.61% 0.61% 0.61% 0.61% 0.61%
Net investment income to average
daily net assets 1.79%* 1.79% 1.89% 1.99% 2.06% 1.82%
Portfolio turnover rate 61%** 100% 95% 102% 104% 37%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.18%* 0.07% 0.06% 0.05% 0.05% 0.30%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
* Annualized.
** Not Annualized.
8 See accompanying notes to the financial statements.
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS M SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED
SIX MONTHS ENDED FEBRUARY 28,
AUGUST 31, 2003 ----------------------
(UNAUDITED) 2003 2002*
---------------- ----------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.72 $ 8.82 $ 9.06
------ ------- ------
Income from investment operations:
Net investment income 0.05 0.12 0.01
Net realized and unrealized gain (loss) 1.23 (2.10) (0.25)
------ ------- ------
Total from investment operations 1.28 (1.98) (0.24)
------ ------- ------
Less distributions to shareholders:
From net investment income (0.04) (0.12) --
------ ------- ------
Total distributions (0.04) (0.12) --
------ ------- ------
NET ASSET VALUE, END OF PERIOD $ 7.96 $ 6.72 $ 8.82
====== ======= ======
TOTAL RETURN(a) 19.03%+ (22.56)% (2.65)%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $8,589 $ 6,444 $ 486
Net expenses to average daily net assets 0.92%** 0.92% 0.91%**
Net investment income to average daily net
assets 1.47%** 1.46% 1.52%**
Portfolio turnover rate 61%+ 100% 95%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.18%** 0.07% 0.06%**
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the period shown.
* Period from January 10, 2002 (commencement of operations) through
February 28, 2002.
** Annualized.
+ Not annualized.
See accompanying notes to the financial statements. 9
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Value Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended,
as an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24,
1985. The Declaration of Trust permits the Trustees to create an unlimited
number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series of shares into classes.
The Fund seeks long-term capital growth primarily through investment in
equity securities. The Fund's benchmark is the Russell 1000 Value Index.
Throughout the six months ended August 31, 2003, 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 2) The principal economic difference
between the classes of shares is the level of fees borne by the classes.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates fair value. Shares of mutual funds are
valued at their net asset value as reported on each business day.
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.
10
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. As of
August 31, 2003, the Fund held no open futures contracts.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and
11
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 the price
of the security or index underlying these transactions. As of August 31,
2003, the Fund held no open swap agreements.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at 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.
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 investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, there were 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.
12
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions are paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash
distributions. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
At February 28, 2003 the Fund had a capital loss carryforward available to
offset future capital gains, if any, to the extent permitted by the Code
of $394,435 and $27,296,081 expiring in 2010 and 2011, respectively. The
Fund elected to defer to March 1, 2003 post-October losses of $14,250,861.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the amortization of premiums and of discounts. Non-cash
dividends, if any, are recorded at the fair market value of the securities
received. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis. Dividends
representing a return of capital are reflected as a reduction of cost.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. Investment
income, common expenses and realized and unrealized gains and losses are
allocated pro-rata among the classes of shares of the Fund based on the
relative net assets of each class. Shareholder service, 12b-1, and
administration fees, which are directly attributable to a class of shares,
are charged to that class' operations.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .46% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
13
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Class M shares of the Fund pay GMO an administration fee monthly at the
annual rate of .20% of the average daily Class M net assets for support
services provided to Class M shareholders.
Fund Distributors, Inc. (the "Distributor") serves as the Fund's
distributor. Pursuant to a Rule 12b-1 distribution plan adopted by the
Fund, Class M shares of the Fund pay a fee, at the annual rate of .25% of
average daily Class M net assets for any activities or expenses primarily
intended to result in the sale of Class M shares of the Fund. This fee may
be spent by the Distributor on personal services rendered to Class M
shareholders of the Fund and/or maintenance of Class M shareholder
accounts.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees (Class III
only), administration fees (Class M only), 12b-1 fees (Class M only), fees
and expenses of the independent Trustees of the Trust (including legal
fees), brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $772. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $41,876,668 and $155,166,127, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$54,972,252 $3,607,373 $(407,237) $3,200,136
</Table>
14
<Page>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 41.4% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
-------------------------- ------------------------
Shares Amount Shares Amount
Class III: ----------- ------------- ---------- ------------
Shares sold 514,976 $ 3,739,422 4,918,036 $ 36,956,368
Shares issued to shareholders in reinvestment
of distributions 31,938 231,388 96,123 700,606
Shares repurchased (18,626,959) (119,699,202) (7,055,458) (55,266,531)
----------- ------------- ---------- ------------
Net decrease (18,080,045) $(115,728,392) (2,041,299) $(17,609,557)
=========== ============= ========== ============
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
-------------------------- ------------------------
Shares Amount Shares Amount
Class M: ----------- ------------- ---------- ------------
Shares sold 206,997 $ 1,565,167 999,258 $ 8,085,093
Shares issued to shareholders in reinvestment
of distributions 4,737 34,128 10,104 69,858
Shares repurchased (91,005) (649,048) (105,520) (773,036)
----------- ------------- ---------- ------------
Net increase 120,729 $ 950,247 903,842 $ 7,381,915
=========== ============= ========== ============
</Table>
15
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
COMMON STOCKS -- 95.6%
AUTO & TRANSPORTATION -- 2.6%
89,800 Burlington Northern Santa Fe Co 2,545,830
23,300 CSX Corp 752,124
61,100 Delta Air Lines Inc 786,357
3,400 Expeditors International Washington Inc 128,214
210,593 Ford Motor Co 2,434,455
161,013 General Motors Corp 6,617,634
34,000 Goodyear Tire & Rubber Co 242,080
24,100 Harley Davidson Inc 1,200,662
14,000 United Parcel Service, Class B 878,640
------------
15,585,996
------------
CONSUMER DISCRETIONARY -- 11.9%
88,200 Amazon.com Inc* 4,096,008
387,500 AOL Time Warner Inc* 6,339,500
40,500 Apollo Group Inc* 2,594,835
56,600 Autonation Inc* 1,063,514
16,000 Black and Decker Corp 684,480
27,000 CDW Corp* 1,393,470
600 ChoicePoint Inc* 23,550
50,500 Clear Channel Communications Inc* 2,278,560
16,800 Coach Inc* 975,072
37,100 Dollar Tree Stores Inc* 1,455,433
111,900 Eastman Kodak Co 3,120,891
123,200 eBay Inc* 6,841,296
37,200 EchoStar Communications Corp* 1,372,680
77,400 Federated Department Stores Inc 3,382,380
70,100 Fox Entertainment Group Inc, Class A* 2,213,758
113,200 Gap Inc 2,364,748
104,900 Home Depot Inc 3,373,584
102,000 International Game Technology 2,635,680
36,600 Jones Apparel Group Inc 1,130,574
260,200 Liberty Media Corp, Series A* 3,148,420
43,500 Limited Brands 737,760
30,200 Liz Claiborne Inc 1,040,994
53,300 May Department Stores Co 1,470,014
101,400 McDonald's Corp 2,273,388
25,700 Mohawk Industries Inc* 1,875,072
25,600 Penney (JC) Co Inc 543,232
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
7,400 Pixar Inc* 538,942
14,000 R.R. Donnelley and Sons 351,960
13,500 Ross Stores Inc 680,130
91,700 Sears Roebuck & Co 4,036,634
56,900 Toys R Us Inc* 774,978
9,200 VF Corp 368,920
22,100 Viacom Inc, Class A 994,279
38,000 Wal Mart Stores Inc 2,248,460
900 Washington Post Co 626,427
12,300 Whirlpool Corp 855,834
28,400 Yahoo! Inc* 948,560
------------
70,854,017
------------
CONSUMER STAPLES -- 3.2%
73,876 Albertsons Inc 1,552,873
30,600 Campbell Soup Co 740,520
19,700 Coca Cola Co 857,344
38,200 Coca Cola Enterprises Inc 706,318
45,400 Colgate-Palmolive Co 2,509,712
28,900 CVS Corp 942,140
31,600 General Mills Co 1,464,976
14,900 Heinz (HJ) Co 482,164
60,200 Kroger Co* 1,156,442
1,200 Pepsico Bottling Group Inc 28,944
95,900 Rite Aid Corp* 484,295
202,200 Safeway Inc* 4,935,702
53,500 Sara Lee Corp 1,015,430
21,200 Supervalu Inc 510,920
44,000 Sysco Corp 1,384,240
31,800 Tyson Foods Inc, Class A 356,160
------------
19,128,180
------------
FINANCIAL SERVICES -- 21.5%
123,200 Allstate Corp 4,404,400
20,900 AMBAC Financial Group 1,356,828
8,300 Amsouth Bancorp 178,782
125,664 Bank of America Corp 9,958,872
32,221 Bear Stearns Cos Inc 2,254,825
44,400 Capital One Financial Corp 2,370,960
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
44,700 Cigna Corp 2,131,296
302,000 Citigroup Inc 13,091,700
13,700 CNA Financial Corp* 297,975
27,100 Comerica Inc 1,337,114
53,200 Countrywide Financial Corp 3,609,620
10,700 D & B Corp* 450,470
6,800 Edwards (AG) Inc 244,800
201,300 Fannie Mae 13,042,227
40,750 Fidelity National Financial Inc 1,177,675
109,046 FleetBoston Financial Corp 3,226,671
18,200 Franklin Resources Inc 786,058
130,900 Freddie Mac 6,957,335
16,000 Golden West Financial Corp 1,380,320
27,600 Greenpoint Financial Corp 935,088
26,100 Hartford Financial Services Group Inc 1,389,042
34,000 Hudson City Bancorp Inc 983,960
26,300 Huntington Bancshares Inc 526,000
181,140 J.P. Morgan Chase & Co 6,198,611
56,900 Janus Capital Group Inc 982,663
30,300 John Hancock Financial Services 925,059
57,700 KeyCorp 1,571,171
17,200 Lehman Brothers Holdings Inc 1,130,556
38,400 Lincoln National Corp 1,360,128
25,300 MBIA Inc 1,428,438
95,400 MBNA Corp 2,226,636
70,800 Merrill Lynch & Co Inc 3,807,624
69,500 MetLife Inc 1,975,190
45,500 MGIC Investment Corp 2,564,835
133,600 Morgan Stanley 6,518,344
47,400 National City Corp 1,501,632
18,900 Old Republic International Corp 634,851
61,200 PMI Group Inc 2,165,256
27,800 PNC Financial Services Group 1,323,280
36,800 Radian Group Inc 1,751,312
24,200 Regions Financial Corp 853,292
13,200 SEI Investments Co 460,680
42,000 SLM Corp 1,687,560
24,100 Sovereign Bancorp Inc 474,288
16,000 Suntrust Banks Inc 978,080
23,700 Torchmark Corp 956,532
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
60,200 Travelers Property Casualty Corp, Class A 926,478
19,500 Union Planters Corp 622,050
149,800 Unumprovident Corp 2,112,180
23,100 Wachovia Corp 973,665
143,700 Washington Mutual Inc 5,601,426
29,600 Wells Fargo & Co 1,484,144
------------
127,287,979
------------
HEALTH CARE -- 18.3%
11,900 Aetna Inc 678,300
15,000 Allergan Inc 1,191,900
164,400 Amgen Inc* 10,833,960
39,200 Biomet Inc 1,165,416
57,600 Boston Scientific Corp* 3,461,760
352,400 Bristol Myers Squibb Co 8,940,388
39,600 Forest Laboratories Inc* 1,861,200
38,900 Genentech Inc* 3,088,660
13,200 Genzyme Corp - General Division* 622,380
50,200 Guidant Corp 2,520,040
32,900 Health Net Inc* 1,047,207
53,520 Johnson & Johnson 2,653,522
35,600 Lilly (Eli) & Co 2,368,468
33,500 Lincare Holdings Inc* 1,160,105
51,918 Medco Health Solutions Inc* 1,386,211
49,300 Medtronic Inc 2,444,294
430,500 Merck & Co Inc 21,662,760
31,700 Mylan Laboratories Inc 1,153,880
848,890 Pfizer Inc 25,398,789
285,900 Schering Plough Corp 4,342,821
23,600 St Jude Medical Inc* 1,228,852
45,600 Stryker Corp 3,456,480
9,600 Varian Medical Systems Inc* 536,160
23,100 Watson Pharmaceutical Inc* 949,410
15,600 WellPoint Health Networks Inc* 1,216,800
56,200 Zimmer Holdings Inc* 2,907,788
------------
108,277,551
------------
INTEGRATED OILS -- 2.2%
12,200 Amerada Hess Corp 575,230
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
INTEGRATED OILS -- CONTINUED
116,933 ConocoPhillips 6,529,539
30,554 Exxon Mobil Corp 1,151,886
107,600 Marathon Oil Corp 3,000,964
55,600 Occidental Petroleum Corp 1,908,748
------------
13,166,367
------------
MATERIALS & PROCESSING -- 1.0%
20,800 Ashland Inc 687,648
34,100 Ecolab Inc 879,439
13,500 Energizer Holdings Inc* 496,530
28,600 Georgia-Pacific Group 662,662
42,600 Sealed Air Corp* 2,072,916
35,000 Sherwin Williams Co 1,052,800
------------
5,851,995
------------
OTHER -- 2.3%
8,600 3M Co 1,225,242
126,700 General Electric Co 3,746,519
180,200 Honeywell International Inc 5,223,998
20,400 Johnson Controls Inc 2,019,600
28,900 Textron Inc 1,300,500
------------
13,515,859
------------
OTHER ENERGY -- 1.9%
24,630 Apache Corp 1,698,977
63,300 Burlington Resources Inc 3,064,986
540 Cross Timbers Royalty Trust 12,062
142,600 El Paso Corp 1,046,684
158,200 Halliburton Co 3,825,276
72,966 XTO Energy Inc 1,531,556
------------
11,179,541
------------
PRODUCER DURABLES -- 2.8%
27,700 American Power Conversion Corp 496,384
84,500 Boeing Co 3,159,455
38,500 Centex Corp 2,903,670
12,300 Cooper Industries Ltd, Class A 625,947
47,200 DR Horton Inc 1,468,864
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
PRODUCER DURABLES -- CONTINUED
20,200 Lennar Corp 1,358,450
18,100 Lexmark International Inc* 1,213,424
9,556 Northrop Grumman Corp 912,407
12,400 Pulte Homes Inc 825,344
23,500 United Technologies Corp 1,885,875
23,300 Waters Corp* 710,650
112,400 Xerox Corp* 1,211,672
------------
16,772,142
------------
TECHNOLOGY -- 16.7%
21,700 Applera Corp-Applied Biosystems Group 472,192
86,000 BEA Systems Inc* 1,165,300
206,000 BMC Software Inc* 3,024,080
70,700 Cadence Design Systems Inc* 1,005,354
21,000 Ceridian Corp* 408,240
450,300 Cisco Systems Inc* 8,623,245
81,600 Citrix Systems Inc* 1,680,144
210,600 Computer Associates International Inc 5,397,678
95,100 Compuware Corp* 565,845
358,000 Corning Inc* 2,953,500
130,500 Dell Corp* 4,258,215
61,900 Electronic Data Systems Corp 1,351,277
172,200 EMC Corp* 2,195,550
140,400 Gateway Inc* 810,108
384,900 Hewlett-Packard Co 7,667,208
195,300 IBM Corp 16,016,553
391,200 Intel Corp 11,196,144
82,100 Juniper Networks Inc* 1,413,762
98,900 Lucent Technologies Inc* 188,899
237,800 Microsoft Corp 6,306,456
1,150,800 Oracle Corp* 14,707,224
134,800 Qualcomm Inc 5,564,544
23,100 Rockwell Automation 628,782
241,900 Tellabs Inc* 1,579,607
------------
99,179,907
------------
UTILITIES -- 11.2%
14,400 Ameren Corp 612,000
36,300 American Electric Power Co Inc 1,027,653
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
UTILITIES -- CONTINUED
177,106 AT&T Corp 3,949,464
412,000 AT&T Wireless Services Inc* 3,551,440
291,700 Bellsouth Corp 7,350,840
33,200 Cablevision Systems Corp, Class A* 668,980
24,700 Centerpoint Energy Inc 209,703
60,600 Citizens Communications Co* 690,840
127,200 Comcast Corp, Special Class A* 3,607,392
19,700 Consolidated Edison Inc 778,741
20,300 Constellation Energy Group Inc 738,717
64,400 Cox Communications Inc, Class A* 2,107,168
17,200 DTE Energy Co 600,452
47,000 Duke Energy Co 802,760
75,300 Edison International* 1,420,158
22,700 Exelon Corp 1,337,030
13,400 Firstenergy Corp 392,084
26,400 FPL Group Inc 1,633,104
10,100 Kinder Morgan Inc 537,825
281,800 Nextel Communications Inc* 5,433,104
105,100 PG & E Corp* 2,330,067
13,900 Pinnacle West Capital Corp 476,770
41,700 PPL Corp 1,654,239
27,100 Public Service Enterprise Group Inc 1,147,414
81,800 Qwest Communications International Inc* 364,010
439,714 SBC Communications Inc 9,889,168
24,100 Sempra Energy 716,975
13,700 Southern Co 388,806
270,400 Sprint Corp (Fon Group) 3,993,808
32,200 Teco Energy Inc 380,926
17,700 TXU Corp 389,400
198,384 Verizon Communications Inc 7,006,923
------------
66,187,961
------------
TOTAL COMMON STOCKS (COST $566,760,343) 566,987,495
------------
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 7.0%
CASH EQUIVALENTS -- 2.8%
3,869,221 Dreyfus Money Market Fund(a) 3,869,221
$ 9,047,381 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.05%, due 9/29/03(a) 9,047,381
3,732,044 Merrimac Money Market Fund(a) 3,732,044
------------
16,648,646
------------
U.S. GOVERNMENT -- 0.3%
$ 1,400,000 U.S. Treasury Bill, 0.93%, due 10/23/03(b) 1,397,606
------------
REPURCHASE AGREEMENTS -- 3.9%
$ 23,058,712 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due 9/2/03, with a maturity value of
$23,060,505 and an effective yield of 0.70%,
collaterlized by a U.S. Treasury Bill with a rate of
1.175%, maturity date of 9/25/03 and market value of
$23,606,801. 23,058,712
------------
TOTAL SHORT-TERM INVESTMENTS (COST $41,104,964) 41,104,964
------------
TOTAL INVESTMENTS -- 102.6%
(Cost $607,865,307) 608,092,459
Other Assets and Liabilities (net) -- (2.6%) (15,126,404)
------------
TOTAL NET ASSETS -- 100.0% $592,966,055
============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</Table>
* Non-income producing security.
(a) Represents investment of security lending collateral (Note 1).
(b) All or a portion of this security has been segregated to cover margin
requirements on open financial futures contracts (Note 6).
8 See accompanying notes to the financial statements.
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$16,072,316 (cost $607,865,307) (Note 1) $608,092,459
Receivable for Fund shares sold 880,000
Dividends and interest receivable 780,673
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 105,754
Receivable for expenses reimbursed by Manager (Note 2) 15,717
------------
Total assets 609,874,603
------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 16,648,646
Payable to affiliate for (Note 2):
Management fee 161,836
Shareholder service fee 59,198
Accrued expenses 38,868
------------
Total liabilities 16,908,548
------------
NET ASSETS $592,966,055
============
NET ASSETS CONSIST OF:
Paid-in capital $676,531,984
Accumulated undistributed net investment income 1,336,305
Accumulated net realized loss (85,601,836)
Net unrealized appreciation 699,602
------------
$592,966,055
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $207,777,351
============
Class IV shares $385,188,704
============
SHARES OUTSTANDING:
Class III 20,237,980
============
Class IV 37,527,442
============
NET ASSET VALUE PER SHARE:
Class III $ 10.27
============
Class IV $ 10.26
============
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends $ 4,903,568
Interest (including securities lending income of $5,304) 39,765
-----------
Total income 4,943,333
-----------
EXPENSES:
Management fee (Note 2) 902,030
Custodian and transfer agent fees 51,170
Audit fees 19,596
Legal fees 10,488
Trustees fees and related expenses (Note 2) 5,780
Registration fees 2,392
Miscellaneous 4,508
Fees reimbursed by Manager (Note 2) (88,154)
-----------
907,810
Shareholder service fee (Note 2) - Class III 141,627
Shareholder service fee (Note 2) - Class IV 187,871
-----------
329,498
-----------
Net expenses 1,237,308
-----------
Net investment income 3,706,025
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (8,843,732)
Closed futures contracts 1,468,027
-----------
Net realized loss (7,375,705)
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 95,549,228
Open futures contracts 472,450
-----------
Net unrealized gain 96,021,678
-----------
Net realized and unrealized gain 88,645,973
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $92,351,998
===========
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 3,706,025 $ 6,156,235
Net realized loss (7,375,705) (47,593,721)
Change in net unrealized appreciation (depreciation) 96,021,678 (74,683,911)
------------ -------------
Net increase (decrease) in net assets from
operations 92,351,998 (116,121,397)
------------ -------------
Distributions to shareholders from:
Net investment income
Class III (1,247,942) (2,003,854)
Class IV (2,450,893) (3,699,871)
------------ -------------
Total distributions from net investment income (3,698,835) (5,703,725)
------------ -------------
(3,698,835) (5,703,725)
------------ -------------
Net share transactions (Note 5):
Class III 14,206,124 80,376,925
Class IV 19,080,893 131,175,397
------------ -------------
Increase in net assets resulting from net share
transactions 33,287,017 211,552,322
------------ -------------
Total increase in net assets 121,940,180 89,727,200
NET ASSETS:
Beginning of period 471,025,875 381,298,675
------------ -------------
End of period (including accumulated undistributed
net investment income of $1,336,305 and $1,329,115,
respectively) $592,966,055 $ 471,025,875
============ =============
</Table>
See accompanying notes to the financial statements. 11
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.69 $ 11.23 $ 12.29 $ 14.35 $ 14.26 $ 14.05
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.06+ 0.12+ 0.15+ 0.17+ 0.20 0.18
Net realized and unrealized gain
(loss) 1.58 (2.55) (1.07) (0.20) 1.94 1.99
-------- -------- -------- -------- -------- --------
Total from investment operations 1.64 (2.43) (0.92) (0.03)++ 2.14 2.17
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.06) (0.11) (0.14) (0.19) (0.19) (0.19)
From net realized gains -- -- -- (1.84) (1.86) (1.77)
-------- -------- -------- -------- -------- --------
Total distributions (0.06) (0.11) (0.14) (2.03) (2.05) (1.96)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.27 $ 8.69 $ 11.23 $ 12.29 $ 14.35 $ 14.26
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) 18.98%** (21.69)% (7.53)% (0.83)% 15.10% 16.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $207,777 $163,025 $133,203 $260,432 $321,786 $227,158
Net expenses to average daily net
assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.48%
Net investment income to average
daily net assets 1.32%* 1.26% 1.24% 1.20% 1.34% 1.35%
Portfolio turnover rate 31%** 62% 85% 82% 108% 77%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.03%* 0.04% 0.03% 0.05% 0.05% 0.25%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
+ Computed using average shares outstanding throughout the period.
++ The amount shown for a share outstanding does not correspond with the
net increase in net assets from operations due to the timing of
purchases and redemptions of Fund shares in relation to the fluctuating
market values of the Fund.
* Annualized.
** Not Annualized.
12 See accompanying notes to the financial statements.
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED
SIX MONTHS ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ----------------------
(UNAUDITED) 2003 2002*
---------------- ----------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.69 $ 11.23 $ 12.32
-------- -------- --------
Income from investment operations:
Net investment income+ 0.07 0.13 0.10
Net realized and unrealized gain (loss) 1.57 (2.55) (1.08)
-------- -------- --------
Total from investment operations 1.64 (2.42) (0.98)
-------- -------- --------
Less distributions to shareholders:
From net investment income (0.07) (0.12) (0.11)
-------- -------- --------
Total distributions (0.07) (0.12) (0.11)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.26 $ 8.69 $ 11.23
======== ======== ========
TOTAL RETURN(a) 18.89%++ (21.65)% (8.00)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $385,189 $308,001 $248,095
Net expenses to average daily net assets 0.44%** 0.44% 0.44%**
Net investment income to average daily net
assets 1.37%** 1.35% 1.37%**
Portfolio turnover rate 31%++ 62% 85%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.03%** 0.04% 0.04%**
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
* Period from July 2, 2001 (commencement of operations) through
February 28, 2002.
+ Computed using average shares outstanding throughout the period.
** Annualized.
++ Not Annualized.
See accompanying notes to the financial statements. 13
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Tobacco-Free Core Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24,
1985. The Declaration of Trust permits the Trustees to create an unlimited
number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series of shares into classes.
The Fund seeks high total return. The Fund seeks to achieve this objective
primarily through investment in U.S. equity securities, excluding those
companies that are tobacco-producing issuers (as listed within the Tobacco
Producing Issuer industry classification maintained by Ford Investor
Services). The Fund's benchmark is the S&P 500 Index.
Throughout the six months ended August 31, 2003, the Fund offered two
classes of shares: Class III and Class IV. The principal economic
difference between the classes of shares is the level of shareholder
service fees borne by the classes. Eligibility for and automatic
conversion between the various classes of shares is generally based on the
total amount of assets invested in a particular fund or with GMO, as more
fully outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates fair value. Shares of mutual funds are
valued at their net asset value as reported on each business day.
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.
14
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for
all open futures contracts as of August 31, 2003.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and
15
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 the price
of the security or index underlying these transactions. As of August 31,
2003 the Fund held no open swap agreements.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
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 investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund loaned securities having a market
value of $16,072,316 collateralized by cash in the amount of $16,648,646,
which was invested in short-term instruments.
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.
16
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions are paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash
distributions. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. Distributions in excess of tax basis earnings and profits, if
any, are reported in the Fund's financial statements as a return of
capital.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code, of $24,719,851 and $28,414,910 expiring in 2010 and 2011,
respectively. The Fund elected to defer to March 1, 2003 post-October
losses of $19,614,026.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the amortization of premiums and discounts. Non-cash
dividends, if any, are recorded at the fair market value of the securities
received. Dividends representing a return of capital are reflected as a
reduction of cost, when the amount of the return of capital is
conclusively determined. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. Investment
income, common expenses and realized and unrealized gains and losses are
allocated pro-rata among the classes of shares of the Fund based on the
relative net assets of each class. Shareholder service fees, which are
directly attributable to a class of shares, are charged to that class'
operations.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .33% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .15%
for Class III shares and .105% for Class IV shares.
17
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $4,216. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $177,434,540 and $162,589,758, respectively.
At August 31, 2003, the approximate 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
-------------- ---------------- ---------------- --------------
$613,503,773 $42,201,681 $(47,612,995) $(5,411,314)
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 63.7% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
18
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
---------------------- --------------------------
Shares Amount Shares Amount
Class III: --------- ----------- ----------- -------------
Shares sold 1,767,811 $17,136,323 19,145,833 $ 202,448,347
Shares issued to shareholders in reinvestment
of distributions 106,908 1,021,131 139,964 1,343,482
Shares repurchased (394,028) (3,951,330) (12,384,896) (123,414,904)
--------- ----------- ----------- -------------
Net increase 1,480,691 $14,206,124 6,900,901 $ 80,376,925
========= =========== =========== =============
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
---------------------- --------------------------
Shares Amount Shares Amount
Class IV: --------- ----------- ----------- -------------
Shares sold 1,823,123 $16,630,000 12,955,575 $ 127,475,526
Shares issued to shareholders in reinvestment
of distributions 257,064 2,450,893 398,388 3,699,871
Shares repurchased -- -- -- --
--------- ----------- ----------- -------------
Net increase 2,080,187 $19,080,893 13,353,963 $ 131,175,397
========= =========== =========== =============
</Table>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FUTURES CONTRACTS
<Table>
<Caption>
Number of Contract Net Unrealized
Contracts Type Expiration Date Value Appreciation
--------- ---------------- ---------------- ------------- --------------
Buys
68 S&P 500 September 2003 $17,130,900 $472,450
========
</Table>
19
<Page>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
20
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
COMMON STOCKS -- 94.8%
AUTO & TRANSPORTATION -- 3.6%
14,000 American Axle & Manufacturing Holdings Inc* 455,000
12,725 Arctic Cat Inc 277,914
37,450 ArvinMeritor Inc 704,809
14,200 Autoliv Inc 428,982
7,100 Bandag Inc 248,358
9,200 BorgWarner Inc 655,224
7,800 Celadon Group Inc* 81,510
33,200 Cooper Tire & Rubber Co 597,600
21,400 Dura Automotive Systems Inc* 225,556
24,000 Intermet Corp 91,680
8,300 Landstar System Inc* 512,193
37,600 Lear Corp* 2,088,680
3,750 Old Dominion Freight Line* 134,062
13,400 USF Corp 426,790
--------------
6,928,358
--------------
CONSUMER DISCRETIONARY -- 19.3%
49,000 Abercrombie & Fitch Co, Class A* 1,491,560
55,600 Allied Waste Industries Inc* 614,936
41,100 American Eagle Outfitters Inc* 705,276
6,100 American Woodmark Corp 310,734
10,100 Angelica Corp 196,546
22,550 Applebees International Inc 724,757
18,500 Bally Total Fitness Holding Corp* 179,080
14,850 Banta Corp 515,740
14,200 Bebe Stores Inc* 327,452
42,300 BJ's Wholesale Club Inc* 923,832
21,000 Blyth Inc 589,680
26,200 Bombay Co Inc* 259,118
20,000 Boyd Gaming Corp 307,000
17,700 Brightpoint Inc* 473,298
7,200 Brown Shoe Co Inc 223,200
15,740 Burlington Coat Factory Warehouse 327,235
51,200 Callaway Golf Co 769,536
17,700 Catalina Marketing Corp* 246,207
11,200 CDW Corp* 578,032
10,200 CEC Entertainment Inc* 400,044
8,700 Central Garden and Pet Co* 242,121
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
19,100 Charlotte Russe Holding Inc* 234,930
20,100 Children's Place* 417,276
13,200 Consolidated Graphics Inc* 326,436
44,300 Convergys Corp* 797,400
12,300 Cornell Cos Inc* 195,693
21,715 Corrections Corp of America, REIT* 499,445
9,600 CPI Corp 159,840
14,300 CSK Auto Corp* 235,950
8,100 CSS Industries Inc 196,425
18,200 Dave & Buster's Inc* 182,728
19,900 Dollar Tree Stores Inc* 780,677
20,500 Dover Motorsports Inc 87,740
58,900 EarthLink Inc* 447,051
30,700 Foot Locker Inc 508,699
26,400 Footstar Inc* 280,632
20,850 Fossil Inc* 585,051
15,800 Furniture Brands International Inc* 452,670
20,100 G TECH Holdings Corp 851,838
52,300 Gemstar-TV Guide International Inc* 252,086
10,500 Group 1 Automotive Inc* 395,325
19,000 Hasbro Inc 351,500
12,200 Ihop Corp 429,928
58,600 IKON Office Solutions Inc 422,506
13,900 Infospace Inc* 219,620
19,200 Isle of Capris Casinos Inc* 360,960
29,400 Jack in the Box Inc* 622,986
8,700 Lithia Motors Inc 196,446
15,800 Lone Star Steakhouse & Saloon Inc 342,228
30,900 Luby's Inc* 75,705
11,950 Marcus Corp 169,570
11,600 Maximus Inc* 415,512
12,300 Maytag Corp 333,330
30,300 MPS Group Inc* 289,365
25,000 Nautilus Group Inc 292,500
14,900 Neiman Marcus Group Inc, Class A* 634,740
33,500 Nu Skin Enterprises Inc 378,550
39,600 Oakley Inc* 431,244
12,400 On Assignment Inc* 59,520
14,100 Outback Steakhouse Inc 544,965
16,500 Papa Johns International Inc* 415,800
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
50,600 Payless ShoeSource Inc* 745,844
10,500 PDi Inc* 270,900
1,200 Pegasus Communications Corp* 23,112
27,400 Pier 1 Imports Inc 563,618
16,200 Polo Ralph Lauren Corp 474,660
13,200 Reebok International Ltd 441,540
18,000 Rent-A-Center Inc* 1,446,660
19,200 Republic Services Inc, Class A* 472,704
20,400 Ross Stores Inc 1,027,752
29,000 Ryan's Family Steak Houses Inc* 388,020
16,100 Salton Inc* 171,304
21,000 Shopko Stores Inc* 289,170
10,600 Skechers U.S.A. Inc* 81,090
12,800 Snap-On Inc 377,600
23,300 Sonic Automotive Inc* 640,750
38,900 Spherion Corp* 270,355
52,500 Spiegel Inc, Class A* 2,100
14,700 Steven Madden Ltd* 307,230
19,900 Tech Data Corp* 663,665
21,100 Tetra Tech Inc* 403,643
8,900 Thomas Nelson Inc* 109,025
29,400 Transportation World Entertainment Corp* 190,218
6,900 Ultimate Electronics Inc* 88,527
22,600 United Stationers Inc* 918,464
7,700 Vans Inc* 71,225
64,700 VeriSign Inc* 968,559
11,100 World Fuel Services Corp 302,475
--------------
36,990,461
--------------
CONSUMER STAPLES -- 2.7%
15,900 Chiquita Brands International* 287,949
13,650 Dean Foods Co* 396,532
1,400 Farmer Brothers Co 488,572
17,800 Ingles Markets Inc, Class A 172,464
50,100 PepsiAmericas Inc 697,392
760 Seaboard Corp 175,940
27,300 Smithfield Foods Inc* 552,825
58,100 Supervalu Inc 1,400,210
13,400 Universal Corp 561,460
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
CONSUMER STAPLES -- CONTINUED
44,300 Winn-Dixie Stores Inc 445,215
--------------
5,178,559
--------------
FINANCIAL SERVICES -- 27.9%
18,700 Acadia Realty Trust 192,423
22,100 Allmerica Financial Corp* 523,107
9,900 AMB Property Corp, REIT 282,150
38,200 American Financial Group Inc 835,816
27,700 AmerUs Group Co 892,771
26,500 Annaly Mortgage Management Inc, REIT 504,560
18,500 Anthracite Capital Inc, REIT 201,465
30,000 Anworth Mortgage Asset Corp, REIT 471,300
28,000 Apex Mortgage Capital Inc 143,640
13,000 Associated Banc Corp 496,210
19,800 Associated Estates Realty Capital, REIT 122,958
26,800 Astoria Financial Corp 861,352
14,475 Baldwin and Lyons Inc, Class B 335,820
8,300 Bank Mutual Corp 306,768
8,400 Bank of Hawaii Corp 284,760
7,400 Bedford Property Investors, REIT 193,880
8,100 Berkley (WR) Corp 267,948
23,700 Boykin Lodging Co, REIT 184,860
32,500 Capstead Mortgage Corp, REIT 403,650
4,400 CBL & Associates Properties Inc, REIT 215,468
12,100 CCC Information Services Group* 186,098
8,300 Central Pacific Financial Corp 220,116
26,000 Checkfree Corp* 597,480
12,400 Citizens Banking Corp Michigan 322,400
5,900 City Holding Co 202,311
6,500 Coastal Bancorp Inc 188,890
24,500 Colonial BancGroup Inc 358,925
14,800 Commerce Group Inc 544,196
24,500 Commercial Federal Corp 607,600
32,800 Commercial Net Lease Realty Inc, REIT 552,024
1,900 Connecticut Bancshares Inc 96,995
4,200 Corus Bancshares Inc 217,560
9,799 Delphi Financial Group Inc, Class A 470,940
9,300 Downey Financial Corp 393,111
19,800 Electro Rent Corp* 237,204
11,500 Entertainment Properties Trust, REIT 359,375
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
28,500 Equity Inns Inc, REIT 195,510
20,510 Equity One Inc, REIT 349,696
8,300 Erie Indemnity Co, Class A 338,059
22,064 Felcor Lodging Trust Inc, REIT 212,697
107,050 Fidelity National Financial Inc 3,093,745
14,500 Financial Federal Corp* 466,030
54,700 First American Corp 1,322,646
3,600 First Citizens Bancshares, Class A 386,028
10,500 First Industrial Realty Trust, REIT 319,725
9,400 FirstFed Financial Corp* 373,180
33,000 Firstmerit Corp 835,890
36,700 Flagstar Bancorp Inc 716,751
65,700 Fremont General Corp 846,216
21,400 GATX Corp 453,252
8,500 GBC Bancorp (California) 330,310
9,800 General Growth Properties, REIT 679,630
13,800 Great Lakes Inc 211,830
21,300 Greater Bay Bancorp 438,141
5,200 Hancock Holding Co 248,092
18,700 Hibernia Corp, Class A 388,025
15,962 Highwood Properties Inc, REIT 366,328
115,600 HRPT Properties Trust, REIT 1,048,492
8,900 Hudson United Bancorp 351,461
22,500 Huntington Bancshares Inc 450,000
35,800 Impac Mortgage Holdings Inc, REIT 540,222
18,000 Innkeepers USA Trust, REIT 151,380
20,900 Interpool Inc 379,335
15,200 Irwin Financial Corp 342,152
18,125 iStar Financial Inc, REIT 664,463
12,000 Kansas City Life Insurance Co 528,000
17,300 Keystone Property Trust 339,599
22,400 Kimco Realty Corp 933,632
8,900 Klamath First Bancorp Inc 196,334
41,300 Knight Trading Group Inc* 382,851
10,100 Koger Equity Inc 180,487
61,600 La Quinta Corp, REIT* 335,104
16,000 Landamerica Financial Group Inc 734,400
16,300 Lasalle Hotel Properties, REIT 268,950
6,200 Leucadia National Corp 236,530
12,200 Local Financial Corp* 197,640
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
20,006 Mack-Cali Realty Corp, REIT 736,221
8,300 MAF Bancorp Inc 317,060
39,400 Meristar Hospitality Corp, REIT 259,646
21,000 MFA Mortgage Investments Inc 220,290
24,000 National Health Investors, REIT 488,160
30,700 Nationwide Financial Services, Class A 905,650
18,500 Nationwide Health Properties Inc, REIT 304,325
21,150 New Century Financial Corp 515,426
26,000 Old Republic International Corp 873,340
29,900 Omega Healthcare Investors Inc, REIT* 190,463
11,000 Pan Pacific Retail Property Inc 463,100
26,100 PMI Group Inc 923,418
21,700 Prime Group Realty Trust* 132,804
26,500 Protective Life Corp 770,885
14,500 Provident Financial Group 387,295
224,600 Providian Financial Corp* 2,302,150
15,700 Public Storage Inc, REIT 579,173
11,500 R&G Financial Corp, Class B 342,700
10,100 RAIT Investment Trust, REIT 239,168
9,100 Redwood Trust Inc, REIT 393,120
8,700 Regency Centers Corp 306,936
13,400 Reinsurance Group of America Inc 506,788
10,500 Riggs National Corp 165,270
16,800 Senior Housing Properties Trust, REIT 233,352
8,000 Sovran Self Storage, REIT 248,240
14,000 Stewart Information Services Corp* 409,640
5,900 Student Loan Group 725,464
7,880 Texas Regional Bancshares, Class A 265,556
33,800 Thornburg Mortgage Inc 836,888
10,000 Triad Guaranty Inc* 464,700
12,100 UICI* 151,250
15,700 United Dominion Realty Trust Inc 287,624
40,200 United Rentals Inc* 678,576
7,600 Urstadt Biddle Properties Inc 101,460
6,900 Value Line Inc 342,240
22,600 Ventas Inc, REIT 382,166
26,015 Washington Federal Inc 659,740
6,900 Webster Financial Corp 268,755
7,600 Weingarten Realty Investors, REIT 340,176
14,600 World Acceptance Corp* 203,524
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
9,100 WSFS Financial Corp 397,670
--------------
53,429,353
--------------
HEALTH CARE -- 4.8%
16,100 Alaris Medical Systems Inc* 276,115
9,800 American Medical Security Group Inc* 197,960
9,200 American Pharmaceutical Partners Inc* 438,288
3,900 Bard (C.R.) Inc 261,300
37,900 Beverly Enterprises Inc* 246,350
10,400 Centene Corp* 291,200
7,200 CIMA Labs Inc* 194,328
10,200 CryoLife Inc* 57,120
15,900 Esperion Therapeutics Inc* 287,631
14,700 Guilford Pharmaceuticals Inc* 75,411
27,410 Health Net Inc* 872,460
44,100 Humana Inc* 775,719
12,500 ICOS Corp* 486,750
13,800 Invitrogen Corp* 795,846
12,700 Osteotech Inc* 139,827
21,900 Pacificare Health Systems Inc* 1,090,620
9,800 PolyMedica Corp 441,196
32,200 Praecis Pharmaceuticals Inc* 205,436
25,500 Prime Medical Services Inc* 116,255
34,000 Res-Care Inc* 223,380
6,100 SFBC International Inc* 177,632
21,300 Thoratec Corp* 319,713
12,300 United Therapeutics Corp* 281,916
17,200 Watson Pharmaceutical Inc* 706,920
28,000 WebMD Corp* 288,400
--------------
9,247,773
--------------
MATERIALS & PROCESSING -- 6.2%
25,700 Ashland Inc 849,642
11,800 Carpenter Technology Corp 245,676
18,900 Commercial Metals Co 373,842
18,800 Cytec Industries Inc* 704,812
18,800 Dycom Industries Inc* 425,820
13,400 Fluor Corp 493,656
9,400 Greif Inc - Class A 240,264
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- CONTINUED
10,200 Harsco Corp 397,698
31,900 Lafarge Corp 1,092,256
13,600 LNR Property Corp 544,000
13,400 Lubrizol Corp 455,600
9,100 Mueller Industries Inc* 262,808
104,900 Owens Illinois Inc* 1,201,105
33,400 Precision Castparts Corp 1,182,360
8,900 Quanex Corp 311,055
18,700 Rock-Tenn Co, Class A 302,005
19,600 Sealed Air Corp* 953,736
13,000 Southern Peru Copper Corp 222,300
11,000 Steel Technologies Inc 132,000
11,700 Stepan Co 269,685
2,100 Trex Company Inc* 76,020
21,500 URS Corp* 490,845
20,500 York International Corp 661,740
--------------
11,888,925
--------------
OTHER -- 0.9%
17,300 FMC Corp* 430,597
29,120 Jacuzzi Brands Inc* 165,693
20,200 Kaman Corp, Class A 260,580
12,700 Lancaster Colony Corp 505,079
3,200 Sequa Corp, Class A* 140,480
21,600 Walter Industries Inc 258,120
--------------
1,760,549
--------------
OTHER ENERGY -- 3.5%
7,900 Cabot Oil & Gas Corp 212,905
269,600 Calpine Corp* 1,520,544
85,100 Chesapeake Energy Corp 922,484
13,200 Clayton Williams Energy Inc* 267,036
20,300 Comstock Resources Inc* 301,455
209 Cross Timbers Royalty Trust 4,678
15,600 Denbury Resources Inc* 205,140
12,700 Energy Partners Ltd* 142,875
11,800 Holly Corp 290,044
25,000 Horizon Offshore Inc* 107,750
19,000 Massey Energy Co 240,350
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
OTHER ENERGY -- CONTINUED
7,900 Peabody Energy Corp 250,035
6,500 Pogo Producing Co 298,740
7,500 St. Mary Land & Exploration Co 212,250
15,900 Sunoco Inc 646,017
15,700 Westport Resources Corp* 373,660
28,300 XTO Energy Inc 594,017
--------------
6,589,980
--------------
PRODUCER DURABLES -- 12.1%
5,100 Allied Defense Group Inc/The* 96,237
78,200 American Power Conversion Corp 1,401,344
34,100 American Tower Corp* 388,058
11,100 Ametek Inc 465,756
11,400 Beazer Homes USA Inc* 947,568
26,800 CellStar Corp* 156,780
36,600 Centex Corp 2,760,372
15,400 CompX International Inc 84,392
7,900 Cooper Industries Ltd, Class A 402,031
43,600 Crown Castle International Corp* 468,700
6,600 Dionex Corp* 258,588
7,300 Donaldson Co Inc 400,770
36,537 DR Horton Inc 1,137,031
11,100 EnPro Industries Inc* 117,771
12,000 Esterline Technologies Corp* 237,120
26,800 Flowserve Corp* 564,140
37,300 General Cable Corp* 336,819
11,100 Genlyte Group Inc* 446,331
5,700 Imagistics International Inc* 163,020
32,400 KB HOME 1,853,928
15,500 Kimball International, Class B 235,755
8,700 Lennar Corp 585,075
10,700 M/I Schottenstein Homes Inc 464,166
16,390 MDC Holdings Inc 837,365
26,800 Measurements Specialties Inc* 337,412
6,900 Meritage Corporation* 310,224
17,800 Milacron Inc 39,872
4,500 Mine Safety Appliances Co 244,170
11,100 MTS Systems Corp 148,740
4,400 Nacco Industries Inc 341,880
2,600 NVR Inc* 1,127,100
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
PRODUCER DURABLES -- CONTINUED
26,200 Plantronics Inc* 662,074
13,528 Pulte Homes Inc 900,424
15,100 Ryland Group Inc 1,014,116
25,400 Standard Pacific Corp 902,716
10,300 Standex International Corp 235,870
3,300 Tecumseh Products Co, Class A 129,426
7,400 Tecumseh Products Co, Class B 278,240
41,300 Toll Brothers Inc* 1,227,436
14,700 Watts Industries Inc 269,892
33,100 Zomax Inc* 140,675
--------------
23,119,384
--------------
TECHNOLOGY -- 7.5%
5,100 Adtran Inc 279,480
32,500 American Management Systems Inc* 466,375
5,400 Analogic Corp 278,154
14,200 Ascential Software Corp* 248,500
6,200 Avid Technology Inc* 307,830
10,500 Avocent Corp* 306,600
14,100 Black Box Corp 664,110
33,800 Ciber Inc* 360,308
90,300 Ciena Corp* 586,950
53,200 Citrix Systems Inc* 1,095,388
228,100 Compuware Corp* 1,357,195
10,650 Comtech Telecommunications* 258,902
35,600 Comverse Technology Inc* 587,044
20,500 Cree Inc* 324,310
22,900 Electronics for Imaging Inc* 490,518
9,800 Hutchinson Technology Inc* 309,974
9,100 Inforte Corp* 70,070
22,900 Ingram Micro Inc, Class A* 324,035
18,300 Iomega Corp* 211,914
35,800 Kemet Corp* 438,908
20,900 Microsemi Corp* 413,193
45,200 Nvidia Corp* 820,832
27,600 PerkinElmer Inc 456,504
28,300 Pixelworks Inc* 268,001
19,900 Pomeroy IT Solutions Inc 291,873
15,000 QRS Corp* 128,250
14,900 SBS Technologies Inc* 172,840
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
36,000 Scientific Atlanta Inc 1,224,000
19,500 Skyworks Solutions Inc* 221,130
8,600 Stellent Inc* 71,122
14,900 Storage Technology Corp* 381,589
24,100 Symbol Technologies Inc 326,314
6,800 Talx Corp 143,895
23,600 Viasat Inc* 375,476
--------------
14,261,584
--------------
UTILITIES -- 6.3%
175,800 AES Corp* 1,139,184
28,500 Alliant Energy Corp 596,505
17,700 Avista Corp 275,589
15,400 Boston Communications Group* 207,130
30,600 Cablevision Systems Corp, Class A* 616,590
38,100 Cincinnati Bell Inc* 215,265
29,200 Citizens Communications Co* 332,880
42,400 DPL Inc 655,080
18,500 El Paso Electric Co* 206,275
12,300 Energen Corp 438,864
17,300 Great Plains Energy Inc 501,008
4,700 Hawaiian Electric Industries Inc 202,006
6,000 MDU Resources Group Inc 203,700
20,900 National Fuel Gas Co 483,835
4,900 New Jersey Resources Corp 176,890
11,100 NSTAR 495,060
31,400 OGE Energy Corp 682,322
24,100 PNM Resources Inc 660,340
14,000 Puget Energy Inc 305,200
17,300 Questar Corp 554,984
22,700 SCANA Corp 771,800
80,100 Teco Energy Inc 947,583
8,700 UGI Corp 265,785
7,000 UIL Holdings Corp 252,350
17,040 UniSource Energy Corp 319,330
14,600 Wisconsin Energy Corp 425,444
--------------
11,930,999
--------------
TOTAL COMMON STOCKS (COST $152,980,376) 181,325,925
--------------
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 10.6%
CASH EQUIVALENTS -- 5.7%
2,540,202 Dreyfus Money Market Fund(a) 2,540,202
$ 5,939,742 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.05%, due 9/29/03(a) 5,939,742
2,450,144 Merrimac Money Market Fund(a) 2,450,144
--------------
10,930,088
--------------
U.S. GOVERNMENT -- 0.3%
$ 600,000 U.S. Treasury Bill, 0.93%, due 10/23/03(b) 599,009
--------------
REPURCHASE AGREEMENTS -- 4.6%
$ 8,733,792 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due 9/02/03, with a maturity value of
$8,734,471 and an effective yield of 0.70%,
collateralized by a U.S. Treasury Bill with a rate of
1.175%, maturity date of 9/25/03 and a market value of
$8,962,748 8,733,792
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $20,262,889) 20,262,889
--------------
TOTAL INVESTMENTS -- 105.4%
(Cost $173,243,265) 201,588,814
Other Assets and Liabilities (net) -- (5.4%) (10,273,056)
--------------
TOTAL NET ASSETS -- 100.0% $ 191,315,758
==============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</Table>
<Table>
REIT - Real Estate Investment Trust
</Table>
* Non-income producing security.
(a) Represents investment of security lending collateral (Note 1).
(b) All or a portion of this security has been segregated to cover margin
requirements on open financial futures contracts (Note 6).
12 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$10,377,795 (cost $173,243,265) (Note 1) $201,588,814
Receivable for Fund shares sold 520,993
Dividends and interest receivable 202,025
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 41,400
Receivable for expenses reimbursed by Manager (Note 2) 12,121
------------
Total assets 202,365,353
------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 10,930,088
Payable for Fund shares repurchased 4,090
Payable to affiliate for (Note 2):
Management fee 51,266
Shareholder service fee 23,303
Accrued expenses 40,848
------------
Total liabilities 11,049,595
------------
NET ASSETS $191,315,758
============
NET ASSETS CONSIST OF:
Paid-in capital $166,685,673
Accumulated undistributed net investment income 388,368
Accumulated net realized loss (4,499,068)
Net unrealized appreciation 28,740,785
------------
$191,315,758
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $191,315,758
============
SHARES OUTSTANDING:
Class III 14,899,447
============
NET ASSET VALUE PER SHARE:
Class III $ 12.84
============
</Table>
See accompanying notes to the financial statements. 13
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $675) $ 1,544,513
Interest (including securities lending income of $17,044) 36,778
-----------
Total income 1,581,291
-----------
EXPENSES:
Management fee (Note 2) 279,284
Custodian and transfer agent fees 27,237
Audit fees 21,620
Registration fees 13,616
Legal fees 3,036
Trustees fees and related expenses (Note 2) 1,675
Miscellaneous 1,288
Fees reimbursed by Manager (Note 2) (66,797)
-----------
280,959
Shareholder service fee (Note 2) - Class III 126,947
-----------
Net expenses 407,906
-----------
Net investment income 1,173,385
-----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 3,678,869
Closed futures contracts 980,788
-----------
Net realized gain 4,659,657
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 38,983,159
Open futures contracts 469,409
-----------
Net unrealized gain 39,452,568
-----------
Net realized and unrealized gain 44,112,225
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $45,285,610
===========
</Table>
14 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,173,385 $ 2,229,695
Net realized gain 4,659,657 21,563,824
Change in net unrealized appreciation (depreciation) 39,452,568 (48,741,791)
------------ -------------
Net increase (decrease) in net assets from
operations 45,285,610 (24,948,272)
------------ -------------
Distributions to shareholders from:
Net investment income
Class III (1,377,839) (2,143,600)
------------ -------------
Total distributions from net investment income (1,377,839) (2,143,600)
------------ -------------
Net realized gains
Class III (210,999) (28,451,497)
------------ -------------
Total distributions from net realized gains (210,999) (28,451,497)
------------ -------------
(1,588,838) (30,595,097)
------------ -------------
Net share transactions (Note 5):
Class III 703,995 (111,137,973)
------------ -------------
Increase (decrease) in net assets resulting from net
share transactions 703,995 (111,137,973)
------------ -------------
Total increase (decrease) in net assets 44,400,767 (166,681,342)
NET ASSETS:
Beginning of period 146,914,991 313,596,333
------------ -------------
End of period (including accumulated undistributed
net investment income of $388,368 and $592,822,
respectively) $191,315,758 $ 146,914,991
============ =============
</Table>
See accompanying notes to the financial statements. 15
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.81 $ 14.91 $ 13.86 $ 12.41 $ 11.69 $ 18.28
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.08 0.18 0.23 0.23 0.15 0.18
Net realized and unrealized gain
(loss) 3.05 (2.74) 1.58 2.38 1.11 (2.50)
-------- -------- -------- -------- -------- --------
Total from investment operations 3.13 (2.56) 1.81 2.61 1.26 (2.32)
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.09) (0.17) (0.21) (0.20) (0.14) (0.19)
From net realized gains (0.01) (2.37) (0.55) (0.96) (0.40) (4.08)
-------- -------- -------- -------- -------- --------
Total distributions (0.10) (2.54) (0.76) (1.16) (0.54) (4.27)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 12.84 $ 9.81 $ 14.91 $ 13.86 $ 12.41 $ 11.69
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) 32.05%** (18.58)% 13.39% 22.14% 10.66% (14.74)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $191,316 $146,915 $313,596 $305,178 $265,778 $347,684
Net expenses to average daily net
assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.48%
Net investment income to average
daily net assets 1.39%* 1.21% 1.60% 1.73% 1.12% 0.99%
Portfolio turnover rate 37%** 69% 59% 111% 50% 49%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.08%* 0.08% 0.04% 0.06% 0.06% 0.21%
Purchase and redemption fees
consisted of the following per
share amounts:(b) $ 0.02 $ 0.08 $ 0.01 $ 0.03 N/A N/A
</Table>
(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.
(b) Effective March 1, 2000, the Fund adopted the provisions of the revised
AICPA Audit and Accounting Guide for Investment Companies which requires
the disclosure of the per share effect of purchase and redemption fees.
Periods prior to March 1, 2000 have not been restated to reflect this
change. Amounts calculated using average shares outstanding throughout
the period.
* Annualized.
** Not Annualized.
16 See accompanying notes to the financial statements.
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Small Cap Value Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24,
1985. The Declaration of Trust permits the Trustees to create an unlimited
number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series of shares into classes.
The Fund seeks long-term growth of capital. The Fund's benchmark is
Russell 2500 Value Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates fair value. Shares of mutual funds are
valued at their net asset value as reported on each business day.
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.
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
17
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for all open futures contracts as of
August 31, 2003.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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
18
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
disagree as to the meaning of contractual terms in the agreements, or that
there may be unfavorable changes in the price of the security or index
underlying these transactions. At August 31, 2003 the Fund held no open
swap contracts.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of collateral, the risk of delay in recovery or
loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund loaned securities having a market
value of $10,377,795, collateralized by cash in the amount of $10,930,088,
which was invested in short-term instruments.
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 quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions are paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash
distributions. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
19
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
The Fund elected to defer to March 1, 2003 post-October losses of
$7,181,417.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the amortization of premiums and discounts. Non-cash
dividends, if any, are recorded at the fair market value of the securities
received. Dividends representing a return of capital are reflected as a
reduction of cost, when the amount of the return of capital is
conclusively determined. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases and fee on redemptions of Fund shares is
.50% of the amount invested or redeemed. If the Manager determines that
any portion of a cash purchase is offset by a corresponding cash
redemption occurring on the same day, the purchase premium or redemption
fee charged by the Fund will be reduced by 100% with respect to that
portion. In addition, the purchase premium or redemption fee charged by
the Fund may be waived if the Manager determines the Fund is either
substantially underweight/overweight in cash so that a purchase or
redemption will not require a securities transaction. All purchase
premiums and redemption fees are paid to and recorded by the Fund as
paid-in capital. For the six months ended August 31, 2003 and the year
ended February 28, 2003, the Fund received $161,579 and $202,204 in
purchase premiums, respectively and $177,581 and $891,984 in redemption
fees, respectively. There is no premium for reinvested distributions or
in-kind transactions.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .33% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder
20
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Service Plan, the shareholder service
fee is calculated based on the average daily net assets at the annual rate
of .15% for Class III shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $1,121. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $58,936,711 and $63,235,060, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$174,877,299 $32,660,656 $(5,949,141) $26,711,515
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 25.0% of the outstanding shares of the Fund were held
by two shareholders. Investment activities of these shareholders may have
a material effect on the Fund.
21
<Page>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ --------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ----------- -------------
Shares sold 3,480,869 $ 40,527,890 3,311,518 $ 40,822,521
Shares issued to shareholders in reinvestment
of distributions 121,837 1,446,612 2,715,424 30,055,774
Shares repurchased (3,678,111) (41,270,507) (12,087,686) (182,016,268)
---------- ------------ ----------- -------------
Net increase (decrease) (75,405) $ 703,995 (6,060,744) $(111,137,973)
========== ============ =========== =============
</Table>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FUTURES CONTRACTS
<Table>
<Caption>
Number of Contract Net Unrealized
Contracts Type Expiration Date Value Appreciation
--------- ---------------- ------------------ ------------ --------------
Buys
24 Russell 2000 September 2003 $5,969,400 $395,236
========
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
22
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 94.5%
UNITED STATES -- 94.5%
CORPORATE DEBT -- 2.0%
6,850,000 JP Morgan & Co. Series MTNA,
Variable Rate, CPI + 4.00%, 5.59%, due 02/15/12 7,035,429
------------
U.S. GOVERNMENT -- 87.9%
31,117,362 U.S. Treasury Inflation Indexed Bond, 3.88%, due
04/15/29 37,457,525
54,624,765 U.S. Treasury Inflation Indexed Bond, 3.63%, due
04/15/28 62,886,761
12,664,320 U.S. Treasury Inflation Indexed Bond, 3.50%, due
01/15/11 13,958,455
21,453,180 U.S. Treasury Inflation Indexed Bond, 3.00%, due
07/15/12 22,817,469
8,000,720 U.S. Treasury Inflation Indexed Bond, 1.88%, due
07/15/13 7,709,444
64,685,595 U.S. Treasury Inflation Indexed Note, 4.25%, due
01/15/10 74,075,117
33,130,720 U.S. Treasury Inflation Indexed Note, 3.88%, due
01/15/09(a) 37,023,580
44,455,136 U.S. Treasury Inflation Indexed Note, 3.63%, due
01/15/08(a) 48,935,382
3,103,230 U.S. Treasury Inflation Indexed Note, 3.38%, due
01/15/12 3,393,188
------------
308,256,921
------------
U.S. GOVERNMENT AGENCY -- 4.6%
15,071,420 Tennessee Valley Authority (Indexed Principal), 3.38%,
due 01/15/07 16,143,270
------------
TOTAL UNITED STATES 331,435,620
------------
TOTAL DEBT OBLIGATIONS (COST $317,912,442) 331,435,620
------------
MUTUAL FUNDS -- 14.4%
478,077 GMO Alpha LIBOR Fund 11,550,351
1,539,140 GMO Short-Duration Collateral Fund 38,801,713
------------
TOTAL MUTUAL FUNDS (COST $50,732,204) 50,352,064
------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.4%
CASH EQUIVALENTS -- 0.4%
1,593,220 Merrimac Cash Fund 1,593,220
------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,593,220) 1,593,220
------------
TOTAL INVESTMENTS -- 109.3%
(Cost $370,237,866) 383,380,904
Other Assets and Liabilities (net) -- (9.3%) (32,778,372)
------------
TOTAL NET ASSETS -- 100.0% $350,602,532
============
</Table>
<Table>
NOTES TO SCHEDULE OF INVESTMENTS:
CPI - Consumer Price Index
Variable rates - The rates shown on variable rate notes are the
current interest rates at August 31, 2003, which are subject
to change based on the terms of the security.
</Table>
(a) All or a portion of this security has been segregated to cover
collateral requirements on reverse repurchase agreements (Note 6).
2 See accompanying notes to the financial statements.
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $370,237,866) (Note 1) $383,380,904
Receivable for Fund shares sold 7,200,000
Interest receivable 2,211,181
Receivable for expenses reimbursed by Manager (Note 2) 13,733
------------
Total assets 392,805,818
------------
LIABILITIES:
Payable for investments purchased 8,811,485
Payable to affiliate for (Note 2):
Management fee 28,456
Shareholder service fee 42,684
Payable for reverse repurchase agreements (Notes 1 and 6) 33,263,486
Accrued expenses and other liabilities 57,175
------------
Total liabilities 42,203,286
------------
NET ASSETS $350,602,532
============
NET ASSETS CONSIST OF:
Paid-in capital $327,915,670
Accumulated undistributed net investment income 6,604,902
Accumulated net realized gain 2,938,922
Net unrealized appreciation 13,143,038
------------
$350,602,532
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $350,602,532
============
SHARES OUTSTANDING:
Class III 30,638,577
============
NET ASSET VALUE PER SHARE:
Class III $ 11.44
============
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest $ 7,133,333
Dividends from investment company shares 150,250
-----------
Total income 7,283,583
-----------
EXPENSES:
Management fee (Note 2) 144,883
Interest expense (Notes 1 and 6) 272,030
Custodian and transfer agent fees 49,830
Audit fees 15,916
Legal fees 7,084
Trustees fees and related expenses (Note 2) 2,929
Registration fees 2,668
Miscellaneous 2,393
Fees reimbursed by Manager (Note 2) (76,234)
-----------
421,499
Shareholder service fee (Note 2) - Class III 217,330
-----------
Net expenses 638,829
-----------
Net investment income 6,644,754
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 2,981,556
-----------
Change in net unrealized appreciation (depreciation) on
investments (11,776,647)
-----------
Net realized and unrealized loss (8,795,091)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(2,150,337)
===========
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 6,644,754 $ 10,982,560
Net realized gain 2,981,556 6,332,369
Change in net unrealized appreciation (depreciation) (11,776,647) 21,696,687
------------ ------------
Net increase (decrease) in net assets from
operations (2,150,337) 39,011,616
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (710,449) (12,116,397)
------------ ------------
Total distributions from net investment income (710,449) (12,116,397)
------------ ------------
Net realized gains
Class III (3,882,099) (6,220,182)
------------ ------------
Total distributions from net realized gains (3,882,099) (6,220,182)
------------ ------------
(4,592,548) (18,336,579)
------------ ------------
Net share transactions (Note 5):
Class III 79,257,654 108,138,941
------------ ------------
Increase in net assets resulting from net share
transactions 79,257,654 108,138,941
------------ ------------
Total increase in net assets 72,514,769 128,813,978
NET ASSETS:
Beginning of period 278,087,763 149,273,785
------------ ------------
End of period (including accumulated undistributed
net investment
income of $6,604,902 and $670,597, respectively) $350,602,532 $278,087,763
============ ============
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment income 6,644,754
Net accretion (2,372,284)
-----------
4,272,470
-----------
Investments purchased (86,433,999)
Investments sold 28,718,303
Short Term investments, net (1,593,220)
-----------
(59,308,916)
-----------
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in interest receivable (384,806)
(Increase) decrease in receivable for fund shares sold (7,100,000)
(Increase) decrease in receivable for expenses reimbursed
by Manager 4,327
Increase (decrease) in payable for Fund shares
repurchased (13,473,706)
Increase (decrease) in payable for securities purchased 2,441,285
Increase (decrease) in payable to affiliate for:
Management fee 7,359
Shareholder service fee 11,038
Increase (decrease) in accrued expenses and other
liabilities (2,144)
-----------
NET CASH USED FOR OPERATING ACTIVITIES (73,533,093)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES*
Proceeds from shares sold 131,978,096
Shares redeemed (57,018,768)
Cash Distributions paid (294,222)
Increase (decrease) in payable for reverse repurchase
agreements (1,355,642)
-----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 73,309,464
-----------
NET DECREASE IN CASH (223,629)
Cash, beginning of period 223,629
-----------
Cash, end of period --
===========
*SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Reinvestment of dividends and distributions 4,298,326
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ----------------------------------------------------
(UNAUDITED) 2003 2002 2001(C) 2000 1999
---------------- ----------- ----------- -------- ------- -------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.72 $ 10.81 $ 10.64 $ 9.72 $ 9.88 $ 10.04
-------- -------- -------- ------- ------- -------
Income from investment operations:
Net investment income 0.27+ 0.51 0.30 0.71+ 0.65+ 0.61
Net realized and unrealized gain
(loss) (0.37) 1.25 0.29 0.90 (0.30) (0.18)
-------- -------- -------- ------- ------- -------
Total from investment operations (0.10) 1.76 0.59 1.61 0.35 0.43
-------- -------- -------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.03) (0.56) (0.37) (0.69) (0.51) (0.59)
From net realized gains (0.15) (0.29) (0.05) -- -- --
-------- -------- -------- ------- ------- -------
Total distributions (0.18) (0.85) (0.42) (0.69) (0.51) (0.59)
-------- -------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 11.44 $ 11.72 $ 10.81 $ 10.64 $ 9.72 $ 9.88
======== ======== ======== ======= ======= =======
TOTAL RETURN(a) (0.88)%** 16.67% 5.66% 16.86% 3.57% 4.28%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $350,603 $278,088 $149,274 $65,887 $51,951 $25,147
Net operating expenses to average
daily net assets 0.25%* 0.25% 0.25% 0.25% 0.25% 0.25%
Interest expense to average daily net
assets 0.19%(b)* 0.15%(b) 0.17%(b) 0.37%(b) 0.45%(b) --
Total net expenses to average daily
net assets 0.44%(d)* 0.40%(d) 0.42%(d) 0.62%(d) 0.70%(d) 0.25%
Net investment income to average
daily net assets 4.59%* 4.55% 4.15% 6.87% 6.49% 4.93%
Portfolio turnover rate 9%** 75% 40% 32% 112% 94%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.05%* 0.06% 0.09% 0.11% 0.13% 0.30%
</Table>
+ Computed using average shares outstanding throughout the period.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(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 for
the year ended February 28, 2001 was to decrease net investment income
per share by $0.001, increase net realized and unrealized gains and
losses per share by $0.001 and decrease the ratio of net investment
income to average net assets from 6.88% to 6.87%. Per share and
ratios/supplemental data for periods prior to March 1, 2000 have not
been restated to reflect this change.
(d) Net expenses exclude expenses incurred indirectly through investment in
GMO Alpha LIBOR Fund and GMO Short-Duration Collateral Fund.
* Annualized.
** Not Annualized.
See accompanying notes to the financial statements. 7
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Inflation Indexed Bond Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund seeks high total return through investment in government bonds
that are indexed or otherwise "linked" to general measures of inflation in
the country of issue ("inflation indexed bonds"). The Fund's benchmark is
the Lehman Brothers U.S. Treasury Inflation Notes Index.
Inflation indexed securities issued by the U.S. Treasury are fixed income
securities whose principal value is periodically adjusted according to the
rate of U.S. inflation. Inflation indexed bonds issued by a foreign
government are generally adjusted to reflect a comparable local inflation
index.
At August 31, 2003, 3.3% of the Fund was invested in the GMO Alpha LIBOR
Fund and 11.1% of the Fund was invested in the GMO Short-Duration
Collateral Fund, separate funds of GMO Trust managed by GMO. Shares of the
GMO Alpha LIBOR Fund and the GMO Short-Duration Collateral Fund are not
publicly available for direct purchase. The financial statements of the
GMO Alpha LIBOR Fund and the GMO Short-Duration Collateral Fund should be
read in conjunction with the Fund's financial statements.
In November 2002, certain bonds ("NPF bonds") held by GMO Alpha LIBOR Fund
("Alpha LIBOR Fund"), in which the Fund had significant investments,
defaulted amid allegations of fraud and significant violations of the
bonds' indentures. Currently, no market exists for the NPF bonds, and they
are being valued at fair value by the trustees of GMO Trust or persons
acting at their direction. The devaluation of the NPF bonds had a negative
impact on the Fund's net asset value per share.
In late November 2002, Alpha LIBOR Fund undertook a reorganization
transaction with a new series of GMO Trust, GMO Short-Duration Collateral
Fund ("SDCF") and approximately 78% of the Fund's interest in Alpha LIBOR
Fund was transferred to SDCF in exchange for SDCF shares. The
reorganization was treated as a sale of the Alpha LIBOR Fund shares for
financial reporting purposes and a distribution by Alpha LIBOR Fund for
tax purposes. Accordingly, for financial reporting purposes, the Fund
recognized a loss on the sale of the Alpha LIBOR shares of approximately
$3,434,839. In addition, the Fund recognized for tax, but not for
financial reporting
8
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
purposes, ordinary income of $1,831,077 and long-term capital gains of
$326,590 from Alpha LIBOR Fund. $5,592,506 was added to the tax cost basis
of the Fund's holdings of Alpha LIBOR Fund.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of other funds of the Trust ("underlying funds") and other mutual
funds are valued at their net asset value as reported on each business
day. 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.
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.
9
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Certain securities held by the Fund, or an underlying fund in which it
invests, were valued on the basis of a price provided by a principal
market maker. The prices provided by the principal market makers may
differ from the value that would be realized if the securities were sold
and the differences could be material to the financial statements.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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. At August 31, 2003, the Fund held no open forward
currency contracts.
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
10
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
another instrument. The Fund may enter into interest rate, total return
and forward swap spread lock swap agreements to manage its exposure to
interest rates. Interest rate swap agreements involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. 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 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. The Fund also may enter into structured warrants, which are
derivatives like swaps and have risks similar to swaps. 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 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. At August 31, 2003, the Fund held
no open swap agreements.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty.
11
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
In connection with transactions in repurchase agreements, if the seller
defaults or enters into insolvency proceedings and the value of the
collateral declines, recovery of cash by the Fund may be delayed or
limited.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements with certain banks
and broker/dealers whereby the Fund sells portfolio assets concurrent with
an agreement by the Fund to repurchase the same assets at a later date at
a fixed price. In connection with these agreements, the Fund establishes
segregated accounts with its custodian in which the Fund maintains cash,
U.S. Government securities or other liquid high grade debt obligations in
the name of the counterparty equal in value to its obligations in respect
of reverse repurchase agreements. Reverse repurchase agreements involve
the risk that the market value of the securities the Fund sold may decline
below the price at which it is obligated to repurchase them under the
agreement. The market value of the securities the Fund has sold is
determined daily and any additional required collateral is allocated to or
sent by the fund on the next business day. At August 31, 2003, the Fund
had entered into reverse repurchase agreements having a market value plus
accrued interest of $33,263,486, collateralized by securities with a
market value of $33,928,756. See Note 6 for a summary of open reverse
repurchase agreements as of August 31, 2003.
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 investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund had no securities on loan.
STATEMENT OF CASH FLOWS
The cash amounts shown in the Statement of Cash Flows are the amounts
reported as cash in the Fund's Statement of Assets and Liabilities and
represent cash on hand at its custodian.
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.
12
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
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 the accrual basis and is adjusted for the amortization of
premiums and discounts. 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 U.S. Treasury inflation indexed
securities is accrued daily based upon the inflation adjusted principal.
Additionally, any increase in the principal or face amount of the
securities is recorded as interest income.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .10% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
13
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund incurs fees and expenses indirectly as a shareholder in Alpha
LIBOR Fund and SDCF. For the six months ended August 31, 2003, indirect
operating expenses (excluding investment-related expenses) were .002%
(annualized) of the Fund's average daily net assets, and indirect
investment-related expenses (including, but not limited to, interest
expense, foreign audit expense, and investment-related legal expense) were
.002% (annualized) of the Fund's average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $2,101. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
For the six months ended August 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 $82,083,749 $24,218,303
Investments (non-U.S. Government securities) 4,350,250 4,500,000
</Table>
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$375,851,821 $8,717,701 $(1,188,618) $7,529,083
</Table>
4. PRINCIPAL SHAREHOLDER
At August 31, 2003, 15.8% of the outstanding shares of the Fund were held
by one shareholder. Investment activities of this shareholder may have a
material effect on the Fund.
14
<Page>
GMO INFLATION INDEXED BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ ------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ---------- ------------
Shares sold 11,368,222 $131,978,096 15,785,072 $177,127,387
Shares issued to shareholders
in reinvestment of distributions 367,693 4,298,326 1,440,111 16,057,246
Shares repurchased (4,816,885) (57,018,768) (7,316,454) (85,045,692)
---------- ------------ ---------- ------------
Net increase 6,919,030 $ 79,257,654 9,908,729 $108,138,941
========== ============ ========== ============
</Table>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
REVERSE REPURCHASE AGREEMENT
<Table>
<Caption>
Face Value Description Market Value
----------- ------------------------------------------------------- ------------
$11,297,061 Barclays Bank, 1.02%, dated 8/13/03, to be repurchased $11,297,061
on demand, at face value, plus accrued interest.
21,966,425 Barclays Bank, 2.00%, dated 8/25/03, to be repurchased 21,966,425
on demand, at face value, plus accrued interest.
-----------
$33,263,486
===========
Average balance outstanding $44,682,897
Average interest rate 1.16%
Maximum balance outstanding $56,237,476
Average shares outstanding 24,725,528
Average balance per share outstanding $ 1.81
</Table>
Average balance outstanding was calculated based on daily balances
outstanding during the period that the Fund had entered into reverse
repurchase agreements.
15
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
REAL ESTATE INVESTMENTS -- 94.3%
COMMON STOCKS -- 1.0%
HOTELS -- 1.0%
55,600 Starwood Hotels & Resorts Worldwide Inc 1,880,948
-------------
TOTAL COMMON STOCKS (COST $1,359,089) 1,880,948
-------------
REAL ESTATE INVESTMENT TRUSTS -- 93.3%
APARTMENTS -- 16.9%
19,900 Amli Residential Properties Trust 489,540
62,200 Apartment Investment & Management Co, Class A 2,397,810
273,900 Archstone-Smith Trust 7,162,485
23,500 Associated Estates Realty Corp 145,935
57,600 Avalonbay Communities Inc 2,672,640
69,500 BRE Properties Inc 2,344,235
29,500 Camden Property Trust 1,123,950
43,100 Cornerstone Realty Income Trust 345,662
287,400 Equity Residential Properties Trust 8,357,592
25,900 Essex Property Trust Inc 1,627,815
26,000 Gables Residential Trust 841,880
25,700 Home Properties of NY Inc 962,465
28,000 Investors Real Estate Trust 281,120
17,200 Mid America Apartment Community 505,508
49,800 Post Properties 1,404,360
33,500 Summit Properties Inc 737,670
23,100 Town & Country Trust 531,300
73,600 United Dominion Realty Trust Inc 1,348,352
-------------
33,280,319
-------------
DIVERSIFIED -- 6.3%
21,800 Colonial Properties Trust 743,380
44,900 Cousins Properties Inc 1,302,100
72,000 Crescent Real Estate Equities 1,044,720
26,000 Glenborough Realty Trust Inc 477,100
17,600 Pennsylvania Real Estate 545,600
151,500 Vornado Realty Trust 7,143,225
41,900 Washington Real Estate Investment Trust 1,171,105
-------------
12,427,230
-------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
HEALTH CARE -- 5.1%
45,100 Health Care Inc 1,354,804
59,000 Health Care Property Investors Inc 2,480,950
51,500 Healthcare Realty Trust Inc 1,630,490
66,900 Nationwide Health Properties 1,100,505
96,700 Senior Housing Properties Trust 1,343,163
15,300 Universal Health Realty Income 412,029
98,800 Ventas Inc 1,670,708
-------------
9,992,649
-------------
HOTELS -- 2.8%
12,900 Boykin Lodging Co 100,620
26,700 Equity Inns Inc 183,162
31,800 Felcor Lodging Trust Inc 306,552
90,900 Hospitality Properties Trust 2,830,626
132,100 Host Marriott Corp* 1,323,642
28,500 Innkeepers USA Trust 239,685
14,800 Lasalle Hotel Properties 244,200
28,700 Meristar Hospitality Corp 189,133
11,000 Winston Hotels Inc 102,080
-------------
5,519,700
-------------
INDUSTRIAL -- 5.9%
78,400 AMB Property Corp 2,234,400
15,000 Centerpoint Properties Corp 951,000
14,700 Eastgroup Properties Inc 401,310
36,600 First Industrial Realty Trust 1,114,470
21,200 Keystone Property Trust 416,156
228,100 Prologis 6,430,139
-------------
11,547,475
-------------
MANUFACTURED HOUSING -- 1.1%
8,300 American Land Lease Inc 150,728
21,100 Chateau Communities Inc 626,459
21,300 Manufactured Home Communities 781,710
17,900 Sun Communities Inc 688,792
-------------
2,247,689
-------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
OFFICE CENTRAL BUSINESS DISTRICT -- 11.2%
115,400 Boston Properties Inc 4,956,430
539,600 Equity Office Properties Trust 15,011,672
27,800 SL Green Realty Corp 977,726
97,600 Trizec Properties Inc 1,166,320
-------------
22,112,148
-------------
OFFICE SUBURBAN -- 12.5%
22,700 Alexandria Real Estate Equity Inc 1,061,225
49,400 Arden Realty Group Inc 1,341,210
24,200 Bedford Property Investors 634,040
41,900 Brandywine Realty Trust 1,022,360
40,400 CarrAmerica Realty Corp 1,137,260
23,100 Corporate Office Properties 427,350
146,900 Duke Realty Investments 4,064,723
22,500 Great Lakes Inc 345,375
39,300 Highwood Properties Inc 901,935
190,400 HRPT Properties Trust 1,726,928
28,500 Kilroy Realty Corp 798,000
24,000 Koger Equity Inc 428,880
105,700 Liberty Property Trust 3,681,531
87,100 Mack-Cali Realty Corp 3,205,280
21,800 Mission West Properties 259,420
10,200 Parkway Properties Inc 457,470
52,400 Prentiss Properties Trust 1,574,620
19,500 PS Business Parks Inc 741,000
36,700 Reckson Associates Realty Corp 831,622
-------------
24,640,229
-------------
OUTLETS -- 1.2%
47,400 Chelsea Property Group Inc 2,178,030
7,800 Tanger Factory Outlet Centers Inc 263,250
-------------
2,441,280
-------------
REGIONAL MALLS -- 12.5%
45,900 CBL & Associates Properties Inc 2,247,723
22,500 Crown American Realty Trust 253,800
87,400 General Growth Properties 6,061,190
27,800 Glimcher Realty Trust 574,348
55,200 Macerich Co 2,053,440
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
REGIONAL MALLS -- CONTINUED
50,200 Mills Corp 1,876,476
134,700 Simon Property Group Inc 5,753,037
32,600 Taubman Centers Inc 644,828
127,000 The Rouse Co 5,063,490
-------------
24,528,332
-------------
SHOPPING CENTERS -- 11.5%
15,300 Acadia Realty Trust 157,437
92,800 Developers Diversified Realty Corp 2,693,056
78,600 Equity One Inc 1,340,130
38,800 Federal Realty Investment Trust 1,357,224
17,100 Heritage Property Investment Trust 468,540
145,300 Kimco Realty Corp 6,056,104
14,700 Kramont Realty Trust 252,105
25,400 Mid Atlantic Realty Trust 533,908
95,200 New Plan Excel Realty Trust 2,176,272
46,400 Pan Pacific Retail Property Inc 1,953,440
7,700 Ramco-Gershenson Properties 192,346
68,100 Regency Centers Corp 2,402,568
16,400 Saul Centers Inc 445,260
8,500 Urstadt Biddle Properties Inc 113,475
56,500 Weingarten Realty 2,528,940
-------------
22,670,805
-------------
STORAGE -- 2.8%
88,000 Public Storage Inc 3,246,320
45,400 Shurgard Storage Centers Inc 1,529,980
21,500 Sovran Self Storage 667,145
-------------
5,443,445
-------------
TRIPLE NET -- 3.5%
43,000 Capital Automotive 1,228,510
53,200 Commercial Net Lease Realty 895,356
9,100 Correctional Properties Trust 231,959
33,000 Corrections Corporation of America* 759,000
21,400 Entertainment Properties Trust 668,750
27,200 Getty Realty Corp 667,760
41,700 Lexington Corporate Properties Trust 769,782
38,300 Realty Income Corp 1,512,084
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
TRIPLE NET -- CONTINUED
7,600 U.S. Restaurant Properties Inc 118,408
-------------
6,851,609
-------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (COST $159,246,158) 183,702,910
-------------
TOTAL REAL ESTATE INVESTMENTS (COST $160,605,247) 185,583,858
-------------
SHORT-TERM INVESTMENTS -- 6.3%
CASH EQUIVALENTS -- 1.5%
$ 682,688 Dreyfus Money Market Fund(a) 682,688
$ 1,596,327 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.05%, due 9/29/03(a) 1,596,327
658,485 Merrimac Money Market Fund(a) 658,485
-------------
2,937,500
-------------
REPURCHASE AGREEMENTS -- 4.8%
$ 9,550,596 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due 9/02/03, with a maturity value of
$9,551,339 and an effective yield of 0.70%,
collateralized by a U.S. Treasury Bill with a rate of
1.175%, maturity date of 9/25/03 and a market value of
$9,770,865. 9,550,596
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $12,488,096) 12,488,096
-------------
TOTAL INVESTMENTS -- 100.6%
(Cost $173,093,343) 198,071,954
Other Assets and Liabilities (net) -- (0.6%) (1,162,732)
-------------
TOTAL NET ASSETS -- 100.0% $ 196,909,222
=============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</Table>
* Non-income producing security.
(a) Represents investment of security lending collateral (Note 1).
See accompanying notes to the financial statements. 5
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$2,853,268 (cost $173,093,343) (Note 1) $198,071,954
Receivable for Fund shares sold 1,610,000
Dividends and interest receivable 252,634
Receivable for expenses waived by Manager (Note 2) 33,858
Receivable for expenses reimbursed by Manager (Note 2) 9,021
------------
Total assets 199,977,467
------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 2,937,500
Payable to affiliate for (Note 2):
Management fee 87,063
Shareholder service fee 24,184
Accrued expenses 19,498
------------
Total liabilities 3,068,245
------------
NET ASSETS $196,909,222
============
NET ASSETS CONSIST OF:
Paid-in capital $209,247,221
Accumulated undistributed net investment income 4,879,665
Accumulated net realized loss (42,196,275)
Net unrealized appreciation 24,978,611
------------
$196,909,222
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $196,909,222
============
SHARES OUTSTANDING:
Class III 15,928,874
============
NET ASSET VALUE PER SHARE:
Class III $ 12.36
============
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends $ 5,355,651
Interest (including securities lending income of $1,205) 10,170
-----------
Total income 5,365,821
-----------
EXPENSES:
Management fee (Note 2) 459,665
Audit fees 20,700
Custodian and transfer agent fees 18,940
Legal fees 3,220
Registration fees 2,392
Trustees fees and related expenses (Note 2) 1,765
Miscellaneous 1,380
Fees waived by Manager (Note 2) (109,895)
Fees reimbursed by Manager (Note 2) (46,620)
-----------
351,547
Shareholder service fee (Note 2)
Class III 127,685
-----------
Net expenses 479,232
-----------
Net investment income 4,886,589
-----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 1,323,960
-----------
Change in net unrealized appreciation (depreciation) on
investments 25,318,367
-----------
Net realized and unrealized gain 26,642,327
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $31,528,916
===========
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 4,886,589 $ 9,628,263
Net realized gain (loss) 1,323,960 (15,461,070)
Change in net unrealized appreciation (depreciation) 25,318,367 (3,555,069)
------------ ------------
Net increase (decrease) in net assets from
operations 31,528,916 (9,387,876)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (5,006,213) (9,424,727)
------------ ------------
Total distributions from net investment income (5,006,213) (9,424,727)
------------ ------------
Net share transactions: (Note 4)
Class III 28,130,480 (31,537,654)
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions 28,130,480 (31,537,654)
------------ ------------
Total increase (decrease) in net assets 54,653,183 (50,350,257)
NET ASSETS:
Beginning of period 142,256,039 192,606,296
------------ ------------
End of period (including accumulated undistributed
net investment income of $4,879,665 and $4,999,289,
respectively) $196,909,222 $142,256,039
============ ============
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.49 $ 11.17 $ 10.31 $ 8.26 $ 9.13 $ 12.92
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.34+ 0.50+ 0.56+ 0.60 0.51+ 0.51+
Net realized and unrealized gain
(loss) 1.85 (0.71) 0.84 1.92 (0.87) (3.36)
-------- -------- -------- -------- -------- --------
Total from investment operations 2.19 (0.21) 1.40 2.52 (0.36) (2.85)
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.32) (0.47) (0.54) (0.47) (0.51) (0.19)
From net realized gains -- -- -- -- -- (0.75)
-------- -------- -------- -------- -------- --------
Total distributions (0.32) (0.47) (0.54) (0.47) (0.51) (0.94)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 12.36 $ 10.49 $ 11.17 $ 10.31 $ 8.26 $ 9.13
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) 20.97%** (2.16)% 13.73% 30.86% (4.69)% (23.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $196,909 $142,256 $192,606 $133,420 $120,508 $143,129
Net expenses to average daily net
assets 0.56%* 0.69% 0.69% 0.69% 0.69% 0.69%
Net investment income to average
daily net assets 5.74%* 4.47% 5.18% 5.85% 5.64% 4.60%
Portfolio turnover rate 10%** 61% 6% 11% 13% 59%
Fees and expenses reimbursed and
waived by the Manager to average
daily net assets: 0.18%* 0.04% 0.05% 0.05% 0.06% 0.26%
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
See accompanying notes to the financial statements. 9
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Real Estate Fund (the "Fund") (formerly GMO REIT Fund) is a series of
GMO Trust (the "Trust"). The Fund is registered under the Investment
Company Act of 1940, as amended, as an open-end, non-diversified
management investment company. The Fund is advised and managed by
Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust
was established as a Massachusetts business trust under the laws of the
Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust
permits the Trustees to create an unlimited number of series ("Funds"),
each of which issues a separate series of shares, and to subdivide a
series of shares into classes.
The Fund seeks high total return through investment in publicly traded
real estate stocks with market capitalizations greater than $100 million,
primarily real estate investment trusts ("REITs"). REITs are managed
vehicles that invest in real estate, real estate-related assets and other
real-estate related companies. The Fund's benchmark is the Morgan Stanley
REIT Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates fair value. Shares of mutual funds are
valued at their net asset value as reported on each business day.
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.
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.
10
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. As of August 31,
2003, the Fund held no open futures contracts.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund loaned securities having a market
value of $2,853,268, collateralized by cash in the amount of $2,937,500,
which was invested in short-term instruments.
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
11
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP. Distributions in excess of tax basis earnings and profits, if
any, are reported in the Fund's financial statements as a return of
capital.
At February 28, 2003, the Fund had capital loss carryforwards available to
offset future capital gains, if any, to the extent permitted by the Code,
of $4,376,897, $15,979,464, $3,875,337 and $323,175 expiring in 2007,
2008, 2009 and 2010, respectively. The Fund elected to defer to March 1,
2003 post-October losses of $16,318,633.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the amortization of premiums and discounts. Non-cash
dividends, if any, are recorded at the fair market value of the securities
received. Dividends representing a return of capital are reflected as a
reduction of cost, when the amount of return of capital is conclusively
determined. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
INVESTMENT RISK
There are certain additional risks involved in investing in REITs rather
than a more diversified portfolio of investments. Since the Fund's
investments are concentrated in real-estate related securities, the value
of its shares can be expected to change in light of factors affecting the
real estate industry, including local or regional economic conditions,
changes in zoning laws, changes in
12
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
real estate value and property taxes, and changes in interest rates. The
value of the Fund's shares may fluctuate more widely than the value of
shares of a portfolio that invests in a broader range of industries.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .54% of
average daily net assets. For the period from June 30, 2003 through
August 31, 2003, GMO had temporarily agreed to waive .21% of the Fund's
management fee. For the period from May 2, 2003 through June 29, 2003, GMO
had temporarily agreed to waive .15% of the Fund's management fee. Prior
to May 2, 2003, GMO did not waive any of the Fund's management fee. The
Manager may terminate this waiver at any time with notice to shareholders.
This waiver is in addition to the Manager's contractual agreement to
reimburse the Fund with respect to certain Fund expenses through June 30,
2004 as described below. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $1,213. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, substantially all of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $39,780,742 and $16,508,243, respectively.
13
<Page>
GMO REAL ESTATE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$175,411,106 $23,575,124 $(914,276) $22,660,848
</Table>
4. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ --------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ----------- -------------
Shares sold 5,127,482 $ 60,477,039 8,496,059 $ 98,980,288
Shares issued to shareholders
in reinvestment of distributions 314,576 3,746,600 608,527 6,861,914
Shares repurchased (3,071,702) (36,093,159) (12,782,580) (137,379,856)
---------- ------------ ----------- -------------
Net increase (decrease) 2,370,356 $ 28,130,480 (3,677,994) $ (31,537,654)
========== ============ =========== =============
</Table>
14
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
620,078 GMO Emerging Countries Fund, Class III 7,050,286
1,572,485 GMO Emerging Markets Fund, Class VI 18,319,452
1,463,925 GMO International Growth Fund, Class III 28,297,667
2,097,077 GMO International Intrinsic Value Fund, Class IV 41,333,384
783,236 GMO International Small Companies Fund, Class III 10,479,693
--------------
TOTAL MUTUAL FUNDS (COST $98,920,616) 105,480,482
--------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENTS -- 0.0%
$ 7,089 Citigroup Global Markets Repurchase Agreement, dated
08/29/03, due 09/02/03, with a maturity value of $7,090
and an effective yield of 0.70% collateralized by a
U.S. Treasury Bill with a rate of 1.175%, maturity date
of 09/25/03 and a market value, including accrued
interest of $7,249. 7,089
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $7,089) 7,089
--------------
TOTAL INVESTMENTS -- 100.0%
(Cost $98,927,705) 105,487,571
Other Assets and Liabilities (net) -- (0.0%) (12,763)
--------------
TOTAL NET ASSETS -- 100.0% $ 105,474,808
==============
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $98,927,705) (Note 1) $105,487,571
Receivable for expenses reimbursed by Manager (Note 2) 4,061
------------
Total assets 105,491,632
------------
LIABILITIES:
Due to custodian 1,385
Accrued expenses 15,439
------------
Total liabilities 16,824
------------
NET ASSETS $105,474,808
============
NET ASSETS CONSIST OF:
Paid-in capital $106,773,546
Accumulated undistributed net investment income 495,191
Accumulated net realized loss (8,353,795)
Net unrealized appreciation 6,559,866
------------
$105,474,808
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $105,474,808
============
SHARES OUTSTANDING:
Class III 10,509,722
============
NET ASSET VALUE PER SHARE:
Class III $ 10.04
============
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends from investment company shares $ 504,698
Interest 541
-----------
Total income 505,239
-----------
EXPENSES:
Audit fees 9,016
Custodian and transfer agent fees 7,374
Registration fees 4,692
Legal fees 1,840
Trustees fees and related expenses (Note 2) 1,357
Miscellaneous 828
Fees reimbursed by Manager (Note 2) (23,750)
-----------
1,357
-----------
Net expenses 1,357
-----------
Net investment income 503,882
-----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 1,602,620
-----------
Change in net unrealized appreciation (depreciation) on
investments 16,188,309
-----------
Net realized and unrealized gain 17,790,929
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $18,294,811
===========
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 503,882 $ 3,692,870
Net realized gain (loss) 1,602,620 (2,005,020)
Change in net unrealized appreciation (depreciation) 16,188,309 (8,571,150)
------------ ------------
Net increase (decrease) in net assets from
operations 18,294,811 (6,883,300)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (2,516,381) (3,111,365)
------------ ------------
Total distributions from net investment income (2,516,381) (3,111,365)
------------ ------------
Net share transactions (Note 5):
Class III (14,071,561) 48,050,692
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions (14,071,561) 48,050,692
------------ ------------
Total increase in net assets 1,706,869 38,056,027
NET ASSETS:
Beginning of period 103,767,939 65,711,912
------------ ------------
End of period (including accumulated undistributed
net investment income of $495,191 and $2,507,690,
respectively) $105,474,808 $103,767,939
============ ============
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 -----------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.23 $ 9.02 $ 9.67 $ 9.87 $ 8.28 $ 10.18
-------- -------- ------- ------- ------- -------
Income from investment operations:
Net investment income(a)+ 0.05 0.36 0.25 0.16 0.22 0.19
Net realized and unrealized gain
(loss) 1.96 (0.83) (0.66) (0.06) 1.73 (1.01)
-------- -------- ------- ------- ------- -------
Total from investment operations 2.01 (0.47) (0.41) 0.10 1.95 (0.82)
-------- -------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.20) (0.32) (0.24) (0.30) (0.08) (0.50)
From net realized gains -- -- -- -- (0.28) (0.58)
-------- -------- ------- ------- ------- -------
Total distributions (0.20) (0.32) (0.24) (0.30) (0.36) (1.08)
-------- -------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.04 $ 8.23 $ 9.02 $ 9.67 $ 9.87 $ 8.28
======== ======== ======= ======= ======= =======
TOTAL RETURN(b) 25.07%** (5.58)% (4.26)% 0.87% 23.58% (8.77)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $105,475 $103,768 $65,712 $72,975 $76,047 $90,161
Net expenses to average daily net
assets(c) 0.00%(d)* 0.00%(d) 0.00%(d) 0.00% 0.00% 0.00%
Net investment income to average
daily net assets(a) 1.08%* 4.11% 2.83% 1.62% 2.24% 2.06%
Portfolio turnover rate 28%** 19% 50% 14% 8% 36%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.05%* 0.05% 0.05% 0.05% 0.04% 0.05%
Purchase and redemption fees
consisted of the following per
share amounts: $ 0.00(e) -- -- -- -- --
</Table>
(a) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund
invests.
(b) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown. Calculation excludes purchase
premiums and redemption fees.
(c) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 2.
(d) Net expenses to average daily net assets was less than 0.01%.
(e) Purchase and redemption fees were less than $0.01 per share.
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
See accompanying notes to the financial statements. 5
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO International Equity Allocation Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks total return greater than the return
of the MSCI ACWI (All Country World Index) Free ex-U.S. Index through
investment to varying extents in shares of underlying international equity
and fixed income funds of the Trust. Prior to August 28, 2003, the Fund
pursued its objective by investing in Class III shares of international
equity and fixed income funds of the Trust. Effective August 28, 2003, the
Fund began investing in the least expensive class of underlying
international equity and fixed income funds of the Trust that is currently
operational. The financial statements of the underlying funds should be
read in conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States 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 underlying funds are valued at their net asset value as reported
on each business day. Short-term investments with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates 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.
Securities held by the underlying funds 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.
6
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Certain investments in securities held by the underlying funds were valued
on the basis of a price provided by a principal market maker. The prices
provided by the principal market makers may differ from the value that
would be realized if the securities were sold and the differences could be
material to the financial statements.
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 or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
7
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
At February 28, 2003, the Fund had capital loss carryforwards available to
offset future capital gains, if any, to the extent permitted by the Code,
of $180,039, $3,610,151 and $1,731,139 expiring in 2008, 2010 and 2011,
respectively. The Fund elected to defer to March 1, 2003 post-October
losses of $492,503.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Income dividends
and capital gain distributions from underlying funds are recorded on the
ex-dividend date. Non-cash dividends, if any, are recorded at fair market
value of the securities received. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. In
addition, the Fund will also incur certain fees and expenses indirectly as
a shareholder in the underlying funds. Because the underlying funds have
varied expense and fee levels and the Fund may own different proportions
of underlying funds at different times, the amount of fees and expenses
indirectly incurred by the Fund will vary (See Note 2).
PURCHASES AND REDEMPTIONS OF FUND SHARES
Effective June 30, 2003, the Fund began to charge purchase premiums and
redemption fees on Fund shares. The Fund's purchase premium and redemption
fee is approximately equal to the weighted average of the purchase
premiums and redemptions fees, if any, of the underlying funds in which
the Fund was invested as of June 30, 2003. The level of purchase premium
and redemption fee for the Fund will be adjusted approximately annually to
account for changes in the Fund's investments (i.e., changes in the
percentage of Fund assets allocated to each underlying fund). The premiums
on cash purchases and fees on redemption of Fund shares is 0.17% of the
amount invested or redeemed. The redemption fee is only applicable to
shares purchased on or after June 30, 2003. If the Manager determines that
any portion of a cash purchase or redemption is offset by a corresponding
cash redemption or purchase occurring on the same day, the purchase
premium or redemption fee charged by the Fund will be reduced by 100% with
respect to that portion. In addition, the purchase premium or redemption
fee charged by the Fund may be waived if the Manager determines the Fund
is either substantially overweighted or underweighted in cash so that a
redemption or purchase will not require a securities transaction. All
purchase premiums and redemption fees are paid to and recorded by the Fund
as paid-in capital. For the six months ended August 31, 2003, the Fund
received $23,601 in purchase premiums. There is no premium for reinvested
distributions or in-kind transactions.
8
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT RISK
The Fund is subject to the investment risk associated with an investment
in the underlying funds, some of which may invest in foreign securities.
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets. The risks described above apply to an even greater extent to
investments in emerging markets. The securities markets of emerging
countries are generally smaller, less developed, less liquid, and more
volatile than the securities markets of the U.S. and developed foreign
markets. Additionally, the investment risk associated with an investment
in the underlying funds may be more pronounced to the extent that the
underlying funds engage in derivative transactions.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not directly charge an
advisory fee or shareholder service fee, but receives advisory and
shareholder service fees from the underlying funds in which the Fund
invests.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund for its total annual operating
expenses (excluding fees and expenses of the independent Trustees of the
Trust (including legal fees), brokerage commissions and other
investment-related costs, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses, interest expense and transfer
taxes).
The Fund incurs fees and expenses indirectly as a shareholder in the
underlying funds. For the six months ended August 31, 2003, shareholder
service fees incurred indirectly by the Fund were .149% (annualized) of
the Fund's average daily net assets, indirect operating expenses
(excluding shareholder service fees and investment-related expenses) were
.645% (annualized) of the Fund's average daily net assets, and indirect
investment-related expenses (including, but not limited to, interest
expense, foreign audit expense, and investment-related legal expense) were
.001% (annualized) of the Fund's average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $1,081. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
9
<Page>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $26,293,896 and $47,862,044, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$99,529,791 $5,957,780 $0 $5,957,780
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 32.3% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ ----------------------
Shares Amount Shares Amount
Class III: ---------- ------------ --------- -----------
Shares sold 2,799,323 $ 26,466,180 5,969,247 $53,418,077
Shares issued to shareholders in reinvestment
of distributions 293,420 2,347,361 314,940 2,836,415
Shares repurchased (5,193,864) (42,885,102) (959,472) (8,203,800)
---------- ------------ --------- -----------
Net increase (decrease) (2,101,121) $(14,071,561) 5,324,715 $48,050,692
========== ============ ========= ===========
</Table>
10
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(FORMERLY GMO WORLD BALANCED ALLOCATION FUND)
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
3,060,323 GMO Core Plus Bond Fund, Class III 30,786,849
1,382,234 GMO Currency Hedged International Bond Fund, Class III 11,859,569
2,110,933 GMO Currency Hedged International Equity Fund, Class
III 13,699,953
3,448,896 GMO Domestic Bond Fund, Class III 33,695,714
577,501 GMO Emerging Countries Fund, Class III 6,566,187
528,364 GMO Emerging Country Debt Fund, Class IV 5,664,066
2,004,902 GMO Emerging Markets Fund, Class VI 23,357,112
1,108,092 GMO Global Hedged Equity Fund, Class III 10,781,736
1,552,382 GMO Inflation Indexed Bond Fund, Class III 17,759,246
598,712 GMO International Bond Fund, Class III 5,651,845
960,235 GMO International Growth Fund, Class III 18,561,343
1,210,688 GMO International Intrinsic Value Fund, Class IV 23,862,656
1,724,680 GMO International Small Companies Fund, Class III 23,076,212
927,292 GMO Real Estate Fund, Class III 11,461,325
350,807 GMO Short-Duration Investment Fund, Class III 3,073,067
671,462 GMO Small Cap Value Fund, Class III 8,621,567
6,298,495 GMO U.S. Core Fund, Class VI 74,007,313
116,514 GMO Value Fund, Class III 928,614
-------------
TOTAL MUTUAL FUNDS (COST $298,647,610) 323,414,374
-------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENTS -- 0.0%
$ 52,398 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due 9/2/03, with a maturity value of $52,402
and an effective yield of 0.70%, collaterized by a U.S.
Treasury Bill with a rate of 1.175%, maturity date of
9/25/03 and a market value of $53,874. 52,398
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $52,398) 52,398
-------------
TOTAL INVESTMENTS -- 100.0%
(Cost $298,700,008) 323,466,772
Other Assets and Liabilities (net) -- (0.0%) (42,578)
-------------
TOTAL NET ASSETS -- 100.0% $ 323,424,194
=============
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $298,700,008) (Note 1) $323,466,772
Receivable for Fund shares sold 11,154,548
Interest receivable 3
Receivable for expenses reimbursed by Manager (Note 2) 7,781
------------
Total assets 334,629,104
------------
LIABILITIES:
Payable for investments purchased 11,185,000
Due to custodian 4,059
Accrued expenses 15,851
------------
Total liabilities 11,204,910
------------
NET ASSETS $323,424,194
============
NET ASSETS CONSIST OF:
Paid-in capital $299,951,982
Accumulated undistributed net investment income 1,520,186
Accumulated net realized loss (2,814,738)
Net unrealized appreciation 24,766,764
------------
$323,424,194
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $323,424,194
============
SHARES OUTSTANDING:
Class III 34,530,914
============
NET ASSET VALUE PER SHARE:
Class III $ 9.37
============
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends from investment company shares $ 1,893,934
Interest 2,855
-----------
Total income 1,896,789
-----------
EXPENSES:
Custodian and transfer agent fees 18,952
Audit fees 9,568
Legal fees 5,704
Trustees fees and related expenses (Note 2) 3,641
Registration fees 2,116
Miscellaneous 2,484
Fees reimbursed by Manager (Note 2) (38,824)
-----------
3,641
-----------
Net expenses 3,641
-----------
Net investment income 1,893,148
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (399,427)
Realized gains distributions from investment company
shares 1,410,249
-----------
Net realized gain on investments 1,010,822
-----------
Change in net unrealized appreciation (depreciation) on
investments 43,690,659
-----------
Net realized and unrealized gain 44,701,481
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $46,594,629
===========
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,893,148 $ 4,010,954
Net realized gain 1,010,822 2,581,470
Change in net unrealized appreciation (depreciation) 43,690,659 (13,162,505)
------------ ------------
Net increase (decrease) in net assets from
operations 46,594,629 (6,570,081)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (1,942,050) (4,040,341)
Net realized gains
Class III (832,307) --
------------ ------------
(2,774,357) (4,040,341)
------------ ------------
Net share transactions (Note 5):
Class III (24,540,717) 307,437,159
------------ ------------
Net increase (decrease) in net assets resulting from
Fund share transactions (24,540,717) 307,437,159
------------ ------------
Total increase in net assets 19,265,055 296,826,737
NET ASSETS:
Beginning of period 304,144,639 7,317,902
------------ ------------
End of period (including accumulated undistributed
net investment income of $1,520,186 and $1,569,088,
respectively) $323,424,194 $304,144,639
============ ============
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ----------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- --------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.13 $ 8.64 $ 8.99 $ 8.96 $ 8.52 $ 10.39
-------- -------- ------ ------- ------- -------
Income from investment operations:
Net investment income(a) 0.05 0.20 0.23 0.21 0.20+ 0.18+
Net realized and unrealized gain
(loss) 1.26 (0.28) (0.20) 0.18 1.69 (0.82)
-------- -------- ------ ------- ------- -------
Total from investment operations 1.31 (0.08) 0.03 0.39 1.89 (0.64)
-------- -------- ------ ------- ------- -------
Less distributions to shareholders:
From net investment income (0.05) (0.43) (0.38) (0.36) -- (0.51)
From net realized gains (0.02) -- -- -- (1.45) (0.72)
-------- -------- ------ ------- ------- -------
Total distributions (0.07) (0.43) (0.38) (0.36) (1.45) (1.23)
-------- -------- ------ ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.37 $ 8.13 $ 8.64 $ 8.99 $ 8.96 $ 8.52
======== ======== ====== ======= ======= =======
TOTAL RETURN(b) 16.16%** (1.06)% 0.49% 4.29% 22.45% (6.67)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $323,424 $304,145 $7,318 $11,021 $10,834 $29,582
Net expenses to average daily net
assets(c) 0.00%*(d) 0.00%(d) 0.00%(d) 0.00% 0.00% 0.00%
Net investment income to average
daily net assets(a) 1.33%* 4.01% 2.66% 2.31% 2.24% 1.91%
Portfolio turnover rate 30%** 61% 25% 12% 12% 17%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.03%* 0.05% 0.31% 0.20% 0.19% 0.06%
Purchase and redemption fees
consisted of the following per
share amounts: $ 0.00(e) N/A N/A N/A N/A N/A
</Table>
(a) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund
invests.
(b) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown. Calculation excludes purchase
premiums and redemption fees.
(c) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 2.
(d) Net expenses to average daily net assets was less than 0.01%.
(e) Purchase and redemption fees were less than $0.01.
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
See accompanying notes to the financial statements. 5
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Global Balanced Asset Allocation Fund (the "Fund") (formerly GMO World
Balanced Allocation Fund) is a series of GMO Trust (the "Trust"). The Fund
is registered under the Investment Company Act of 1940, as amended, as an
open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts business trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
In August 2002, substantially all of the shareholders of GMO Global
Balanced Allocation Fund ("GBAL") exchanged their shares for a total of
17,040,209 shares of the Fund valued at $146,529,743, and these amounts
are included in "shares sold" in Note 5. The exchange transaction included
an in-kind redemption from GBAL followed by a purchase in-kind of Fund
shares. For U.S. federal income tax purposes, this transaction is
considered a tax-free reorganization of the Fund.
On June 30, 2002, the Fund changed its benchmark from the MSCI ACWI (All
Country World Index) Free Index to the GMO Global Balanced Index to
reflect its current practice of providing broad exposure to both global
equity and fixed income securities. The GMO Global Balanced Index is a
composite benchmark computed by GMO consisting of (i) the S&P 500 Index (a
U.S. large capitalization stock index, independently maintained and
published by Standard & Poor's Corporation); (ii) the MSCI ACWI Free
ex-U.S. Index (an international (excluding U.S. and including emerging)
equity index, independently maintained and published by Morgan Stanley
Capital International): (iii) the Lehman Brothers U.S. Aggregate Bond
Index (an independently maintained and published index comprised of U.S.
fixed rate debt issues, having a maturity of at least one year, rated
investment grade or higher by Moody's Investors Service, Standard & Poor's
or Fitch IBCA, Inc.) in the following proportions: 48.75% (S&P 500),
16.25% (MSCI ACWI), and 35% (Lehman Brothers). The GMO Global Balanced
Index reflects investment of all applicable dividends, capital gains, and
interest.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks total return greater than the return
of the GMO Global Balanced Index through investment to varying extents in
the underlying funds. The Fund pursues its objective by investing in the
least expensive class of underlying domestic equity, international equity,
and fixed income funds of the Trust that is currently operational. The
financial statements of the underlying funds should be read in conjunction
with the Fund's financial statements.
6
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 underlying funds are valued at their net asset value as reported
on each business day. Short-term investments with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates 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.
Securities held by the underlying funds may be valued by independent
pricing services which use prices provided by market makers or estimates
of market values obtained from yield data relating to investments or
securities with similar characteristics.
Certain investments in securities held by the underlying funds were valued
on the basis of a price provided by a principal market maker. The prices
provided by the principal market makers may differ from the value that
would be realized if the securities were sold and the differences could be
material to the financial statements.
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 or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
7
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions are paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash
distributions. Distributions to shareholders are recorded by the Fund on
the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
At February 28, 2003, the Fund had a capital loss carryforward available
of $5,001,056. However, restrictions on annual utilization of this
carryforward under the Code resulting from significant shareholder
activity are expected to limit maximum utilization to offset future
capital gains prior to expiration to approximately $4,466 of which $3,190
expires in 2008 and $1,276 expires in 2010.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Income dividends
and capital gain distributions from 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 fair market value of the
securities received. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. In
addition, the Fund will also incur certain fees and expenses indirectly as
a shareholder in the underlying funds. Because the underlying funds have
varied expense and fee levels and the Fund may own different proportions
of underlying funds at different times, the amount of fees and expenses
indirectly incurred by the Fund will vary. (See Note 2.)
8
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
PURCHASES AND REDEMPTIONS OF FUND SHARES
Effective June 30, 2003, the Fund began to charge purchase premiums and
redemption fees on Fund shares. The Fund's purchase premium and redemption
fee is approximately equal to the weighted average of the purchase
premiums and redemptions fees, if any, of the underlying funds in which
the Fund was invested as of June 30, 2003. The level of purchase premium
and redemption fee for the Fund will be adjusted approximately annually to
account for changes in the Fund's investments (i.e., changes in the
percentage of Fund assets allocated to each underlying fund). The premiums
on cash purchases and fees on redemption of Fund shares is 0.13% of the
amount invested or redeemed. The redemption fee is only applicable to
shares purchased on or after June 30, 2003. If the Manager determines that
any portion of a cash purchase or redemption is offset by a corresponding
cash redemption or purchase occurring on the same day, the purchase
premium or redemption fee charged by the Fund will be reduced by 100% with
respect to that portion. In addition, the purchase premium or redemption
fee charged by the Fund may be waived if the Manager determines the Fund
is either substantially overweighted or underweighted in cash so that a
redemption or purchase will not require a securities transaction. All
purchase premiums and redemption fees are paid to and recorded by the Fund
as paid-in capital. For the six months ended August 31, 2003, the Fund
received $142,715 and $0 in purchase premiums and redemption fees,
respectively. There is no premium for reinvested distributions.
INVESTMENT RISK
The Fund is subject to the investment risk associated with an investment
in the underlying funds, some of which may invest in foreign securities.
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets. The risks described above apply to an even greater extent to
investments in emerging markets. The securities markets of emerging
countries are generally smaller, less developed, less liquid, and more
volatile than the securities markets of the U.S. and developed foreign
markets. Additionally, the investment risk associated with an investment
in the underlying funds may be more pronounced to the extent that the
underlying funds engage in derivative transactions.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not directly charge an
advisory fee or shareholder service fee, but receives advisory and
shareholder service fees from the underlying funds in which the Fund
invests.
9
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund for its total annual operating
expenses (excluding fees and expenses of the independent Trustees of the
Trust (including legal fees), brokerage commissions and other
investment-related costs, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses, interest expense and transfer
taxes). The Fund incurs fees and expenses indirectly as a shareholder in
the underlying funds. For the six months ended August 31, 2003,
shareholder service fees incurred indirectly by the Fund were .124%
(annualized) of the Fund's average daily net assets, indirect operating
expenses (excluding shareholder service fees and investment-related
expenses) were .423% (annualized) of the Fund's average daily net assets,
and indirect investment-related expenses (including, but not limited to,
interest expense, foreign audit expense, and investment-related legal
expense) were .015% (annualized) of the Fund's average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $2,905. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $88,892,792 and $112,888,352, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$298,776,154 $25,897,145 $(1,206,527) $24,690,618
</Table>
4. PRINCIPAL SHAREHOLDER
At August 31, 2003, 25.2% of the outstanding shares of the Fund were held
by one shareholder. Investment activities of this shareholder may have a
material effect on the Fund.
10
<Page>
GMO GLOBAL BALANCED ASSET ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
-------------------------- ------------------------
Shares Amount Shares Amount
Class III: ----------- ------------- ---------- ------------
Shares sold 14,277,846 $ 129,655,294 37,840,597 $318,274,774*
Shares issued to shareholders in reinvestment
of distributions 298,650 2,657,980 443,693 3,651,607
Shares repurchased (17,468,166) (156,853,991) (1,708,667) (14,489,222)
----------- ------------- ---------- ------------
Net increase (decrease) (2,891,670) $ (24,540,717) 36,575,623 $307,437,159
=========== ============= ========== ============
</Table>
* Includes a tax-free contribution of securities in-kind, which had a
market value of $146,529,743, including unrealized losses of $5,545,507,
on the date of contribution.
11
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
664,297 GMO Currency Hedged International Equity Fund, Class
III 4,311,289
262,939 GMO Emerging Countries Fund, Class III 2,989,619
251,255 GMO Emerging Country Debt Fund, Class IV 2,693,451
1,358,795 GMO Emerging Markets Fund, Class VI 15,829,960
213,518 GMO Global Hedged Equity Fund, Class III 2,077,531
6,272 GMO Growth Fund, Class III 106,561
96,660 GMO Inflation Indexed Bond Fund, Class III 1,105,789
505,563 GMO International Growth Fund, Class III 9,772,531
796,697 GMO International Intrinsic Value Fund, Class IV 15,702,899
805,296 GMO International Small Companies Fund, Class III 10,774,856
457,649 GMO Real Estate Fund, Class III 5,656,544
16,186 GMO Short-Duration Investment Fund, Class III 141,791
484,141 GMO Small Cap Value Fund, Class III 6,216,369
4,508,418 GMO U.S. Core Fund, Class VI 52,973,916
134,187 GMO Value Fund, Class III 1,069,468
-------------
TOTAL MUTUAL FUNDS (COST $125,891,239) 131,422,574
-------------
PRIVATE INVESTMENT FUND -- 0.0%
175 GMO SPV I, LLC*(a) 2,808
-------------
TOTAL PRIVATE INVESTMENT FUND (COST $3,505) 2,808
-------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENTS -- 0.0%
$ 15,728 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due 9/02/03, with a maturity value of $15,729
and an effective yield of 1.22%, collateralized by a
U.S. Treasury Bill with a rate of 1.175%, maturity date
of 9/25/03, and a market value of $16,162. 15,728
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $15,728) 15,728
-------------
TOTAL INVESTMENTS -- 100.0%
(Cost $125,910,472) 131,441,110
Other Assets and Liabilities (net) -- (0.0%) (9,417)
-------------
TOTAL NET ASSETS -- 100.0% $ 131,431,693
=============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</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).
See accompanying notes to the financial statements. 1
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $125,910,472) (Note 1) $131,441,110
Receivable for expenses reimbursed by Manager (Note 2) 4,526
------------
Total assets 131,445,636
------------
LIABILITIES:
Due to custodian 1,064
Accrued expenses 12,879
------------
Total liabilities 13,943
------------
NET ASSETS $131,431,693
============
NET ASSETS CONSIST OF:
Paid-in capital $123,363,399
Accumulated undistributed net investment income 880,106
Accumulated net realized gain 1,657,550
Net unrealized appreciation 5,530,638
------------
$131,431,693
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $131,431,693
============
SHARES OUTSTANDING:
Class III 14,318,727
============
NET ASSET VALUE PER SHARE:
Class III $ 9.18
============
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends from investment company shares $ 891,740
Interest 947
-----------
Total income 892,687
-----------
EXPENSES:
Audit fees 9,016
Custodian and transfer agent fees 7,747
Registration fees 2,300
Legal fees 2,024
Trustees fees and related expenses (Note 2) 1,454
Miscellaneous 828
Fees reimbursed by Manager (Note 2) (21,915)
-----------
1,454
-----------
Net expenses 1,454
-----------
Net investment income 891,233
-----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments 4,337,319
Realized gains distributions from investment company
shares 95,724
-----------
Net realized gain on investments 4,433,043
-----------
Change in net unrealized appreciation (depreciation) on
investments 17,157,720
-----------
Net realized and unrealized gain 21,590,763
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $22,481,996
===========
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 891,233 $ 1,633,247
Net realized gain (loss) 4,433,043 (43,226)
Change in net unrealized appreciation (depreciation) 17,157,720 (6,859,717)
------------ -----------
Net increase (decrease) in net assets from
operations 22,481,996 (5,269,696)
------------ -----------
Distributions to shareholders from:
Net investment income
Class III (537,882) (1,700,368)
------------ -----------
Total distributions from net investment income (537,882) (1,700,368)
------------ -----------
Net realized gains
Class III (283,096) --
------------ -----------
Total distributions from net realized gains (283,096) --
------------ -----------
(820,978) (1,700,368)
------------ -----------
Net share transactions (Note 5):
Class III 30,034,397 46,581,994
------------ -----------
Increase in net assets resulting from net share
transactions 30,034,397 46,581,994
------------ -----------
Total increase in net assets 51,695,415 39,611,930
NET ASSETS:
Beginning of period 79,736,278 40,124,348
------------ -----------
End of period (including accumulated undistributed
net investment income of $880,106 and $526,755,
respectively) $131,431,693 $79,736,278
============ ===========
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ----------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.51 $ 8.66 $ 8.92 $ 9.49 $ 8.85 $ 10.48
-------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income(a) 0.05 0.15 0.23 0.24 0.25 0.16+
Net realized and unrealized gain
(loss) 1.68 (1.07) (0.14) 0.39 1.45 (0.40)
-------- ------- ------- ------- ------- -------
Total from investment operations 1.73 (0.92) 0.09 0.63 1.70 (0.24)
-------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.04) (0.23) (0.13) (0.51) (0.43) (0.56)
From net realized gains (0.02) -- (0.22) (0.69) (0.63) (0.83)
-------- ------- ------- ------- ------- -------
Total distributions (0.06) (0.23) (0.35) (1.20) (1.06) (1.39)
-------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.18 $ 7.51 $ 8.66 $ 8.92 $ 9.49 $ 8.85
======== ======= ======= ======= ======= =======
TOTAL RETURN(b) 23.03%** (10.84)% 1.12% 6.57% 19.14% (2.84)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $131,432 $79,736 $40,124 $42,776 $36,669 $32,474
Net expenses to average daily net
assets(c) 0.00%*(d) 0.00%(d) 0.00%(d) 0.00% 0.00% 0.00%
Net investment income to average
daily net assets(a) 1.61%* 3.06% 2.73% 2.56% 2.63% 1.64%
Portfolio turnover rate 7%** 30% 13% 19% 18% 34%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.04%* 0.07% 0.07% 0.07% 0.09% 0.07%
Purchase and redemption fees
consisted of the following per
share amounts: $ 0.00(e) -- -- -- -- --
</Table>
(a) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund
invests.
(b) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown. Calculations excludes purchase
premiums and redemption fees.
(c) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. (See Note 2.)
(d) Net expenses to average daily net assets was less than 0.01%.
(e) Purchase and redemption fees were less that $0.01.
* Annualized.
** Not Annualized.
+ Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 5
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Global (U.S.+) Equity Allocation Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks total return greater than that of the
GMO Global Equity Index through investment to varying extents in
underlying funds of the Trust. The GMO Global Equity Index, a composite
index computed by the Manager, consists of (i) the S&P 500 Index (a U.S.
large capitalization stock index, independently maintained and published
by Standard & Poor's) and (ii) the MSCI ACWI (All Country World Index)
Free ex-U.S. Index (an international (excluding U.S. and including
emerging markets) equity index, independently maintained and published by
Morgain Stanley Capital International) in the following proportions: 75%
(S&P 500) and 25% (MSCI ACWI (All Country World Index) Free ex-U.S.
Index). Prior to August 28, 2003, the Fund pursued its objective by
investing in Class III shares of domestic equity, international equity,
and fixed income funds of the Trust. Effective August 28, 2003, the Fund
began investing in the least expensive class of underlying domestic
equity, international equity and fixed income funds of the Trust that is
currently operational. The financial statements of the underlying funds
should be read in conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States 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 underlying funds are valued at their net asset value as reported
on each business day. Short-term investments with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates 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
6
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
Securities held by the underlying funds may be valued by independent
pricing services which use prices provided by market makers or estimates
of market values obtained from yield data relating to investments or
securities with similar characteristics.
Certain investments in securities held by the underlying funds were valued
on the basis of a price provided by a principal market maker. The prices
provided by the principal market makers may differ from the value that
would be realized if the securities were sold and the differences could be
material to the financial statements.
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 or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
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 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.
7
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Income dividends
and capital gain distributions from underlying funds are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
Non-cash dividends, if any, are recorded at the fair market value of the
securities received. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. In
addition, the Fund will also incur certain fees and expenses indirectly as
a shareholder in the underlying funds. Because the underlying funds have
varied expense and fee levels and the Fund may own different proportions
of underlying funds at different times, the amount of fees and expenses
indirectly incurred by the Fund will vary.
PURCHASE AND REDEMPTION OF FUND SHARES
Effective June 30, 2003, the Fund began to charge purchase premiums and
redemption fees on Fund shares. The Fund's purchase premium and redemption
fee is approximately equal to the weighted average of the purchase
premiums and redemptions fees, if any, of the underlying funds in which
the Fund was invested as of June 30, 2003. The level of purchase premium
and redemption fee for the Fund will be adjusted approximately annually to
account for changes in the Fund's investments (i.e., changes in the
percentage of Fund assets allocated to each underlying fund). The premium
on cash purchases of Fund shares is .17% of the amount invested. In the
case of cash redemptions, which applies to shares acquired on or after
June 30, 2003, the fee is .17% of the amount redeemed. If the Manager
determines that any portion of a cash purchase is offset by a
corresponding cash redemption occurring on the same day, the purchase
premium or redemption fee charged by the Fund will be reduced by 100% with
respect to that portion. In addition, the purchase premium or redemption
fee charged by the Fund may be waived if the Manager determines the Fund
is either substantially underweight/overweight in cash so that a purchase
or redemption will not require a securities transaction. All purchase
premiums and redemption fees are paid to and recorded by the Fund as
paid-in capital. For the six months ended August 31, 2003, the Fund
received $17,004 in purchase premiums. There is no premium for reinvested
distributions or in-kind transactions.
8
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT RISK
The Fund is subject to the investment risk associated with an investment
in the underlying funds, some of which may invest in foreign securities.
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets. The risks described above apply to an even greater extent to
investments in emerging markets. The securities markets of emerging
countries are generally smaller, less developed, less liquid, and more
volatile than the securities markets of the U.S. and developed foreign
markets. Additionally, the investment risk associated with an investment
in the underlying funds may be more pronounced to the extent that the
underlying funds engage in derivative transactions.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not directly charge an
advisory fee or shareholder service fee, but receives advisory and
shareholder service fees from the underlying funds in which the Fund
invests.
GMO has entered into a binding agreement, effective until at least
June 30, 2004, to reimburse the Fund for its total annual direct operating
expenses (excluding fees and expenses of the independent Trustees of the
Trust (including legal fees), brokerage commissions and other
investment-related costs, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses, interest expense and transfer
taxes).
The Fund incurs fees and expenses indirectly as a shareholder in the
underlying funds. For the six months ended August 31, 2003, shareholder
service fees incurred indirectly by the Fund were .149% (annualized) of
the Fund's average daily net assets, indirect operating expenses
(excluding shareholder service fees and investment-related expenses) were
.500% (annualized) of the Fund's average daily net assets, and indirect
investment-related expenses (including, but not limited to, interest
expense, foreign audit expense, and investment-related legal expense) were
.004% (annualized) of the Fund's average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $1,178. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
9
<Page>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $32,851,065 and $7,348,698, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$126,249,662 $5,527,596 $(336,148) $5,191,448
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 43.8% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
---------------------- ----------------------
Shares Amount Shares Amount
Class III: --------- ----------- --------- -----------
Shares sold 3,747,879 $30,435,927 6,144,908 $47,976,365
Shares issued to shareholders
in reinvestment of distributions 60,771 543,902 63,094 494,347
Shares repurchased (106,935) (945,432) (226,927) (1,888,718)
--------- ----------- --------- -----------
Net increase 3,701,715 $30,034,397 5,981,075 $46,581,994
========= =========== ========= ===========
</Table>
10
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
COMMON STOCKS -- 97.1%
CHINA -- 17.3%
780,000 Angang New Steel Co, Class H 270,023
224,000 Beijing Datang Power Co Ltd 121,343
571,000 Bengang Steel Plates Co Ltd, Class B* 231,348
881,000 Brilliance China Automotive Holdings Ltd 279,571
1,828,000 China Everbright Ltd 896,498
319,000 China International Marine Containers Co Ltd, Class B* 425,369
1,248,000 China Mobile Ltd 3,208,267
45,200 China Mobile Ltd ADR 586,244
5,906,000 China Petroleum & Chemical Corp, Class H 1,798,451
242,000 China Shipping Development Co Ltd, Class H 121,010
489,000 China Unicom 344,836
24,000 China Unicom ADR 172,080
827,000 Chongqing Changan Automobile Co Ltd, Class B 690,284
617,000 CNOOC Ltd 1,147,083
14,500 CNOOC Ltd ADR 547,810
497,000 Cosco Pacific Ltd 554,392
209,000 CSG Technology Holding Co Ltd, Class B 103,169
2,097,100 Denway Motors Ltd 1,183,078
8,186,900 Guangdong Investments Ltd* 1,501,057
6,000 Huaneng Power International Inc ADR 329,400
630,000 Huaneng Power International Inc, Class H 864,303
3,632,000 Maanshan Iron & Steel Co Ltd, Class H 852,194
14,432,000 PetroChina Co Ltd, Class H 5,042,369
129,000 Shandong Chenming Paper Holdings Ltd 87,496
1,698,000 Shandong International Power Development Co Ltd,
Class H 500,734
210,000 Shanghai Industrial Holdings Ltd, Class H 350,029
543,000 Shenzhen SEG Co Ltd, Class B* 227,661
1,808,000 Sinopec Shanghai Petrochemical Co Ltd, Class H 440,447
3,110,000 Stone Electronic Technology Ltd* 374,826
1,390,000 TCL International Holdings Ltd 409,906
736,000 Tsingtao Brewing Co Ltd, Class H 603,948
954,000 Yanzhou Coal Mining Co Ltd, Class H 559,604
892,000 Zhejiang Southeast Electric Power Co, Class B 563,744
------------
25,388,574
------------
INDONESIA -- 19.8%
2,369,000 Astra International Tbk* 1,060,955
16,297,700 Bank Central Asia Tbk 5,618,241
478,000 Bank Mandiri Persero PT* 47,885
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
INDONESIA -- CONTINUED
1,744,600 Bimantara Citra Tbk PT 812,159
9,188,800 Citra Marga Nusaphala Persad 406,105
6,694,000 Gajah Tunggal Tbk* 414,184
384,500 Gudang Garam 416,900
7,171,000 HM Sampoerna Tbk 3,422,811
13,929,500 Indah Kiat Pulp & Paper* 738,748
17,050,500 Indofood Sukses Makmur Tbk 1,356,404
197,000 Indonesian Satellite Corp Tbk PT 188,061
5,135,000 Indorama Synthetics 251,152
1,529,000 International Nickel 2,117,354
7,415,000 PT Bank Pan Indonesia Tbk 244,691
21,000 PT Indonesian Satellite Corp Tbk, Class B ADR 200,340
17,125,500 PT Matahari Putra Prima Tbk 958,705
1,000,000 Ramayana Lestari Sentosa 347,672
17,458,000 Telekomunikasi Indonesia Tbk PT, Class B 9,413,123
93,200 Telekomunikasi Indonesia Tbk PT, Class B ADR 1,043,840
------------
29,059,330
------------
MALAYSIA -- 3.4%
460,600 Affin Holdings Berhad 149,089
32,000 British American Tobacco Berhad 345,263
38,000 Edaran Otomobil Berhad 90,500
781,000 Highlands and Lowlands Berhad 686,458
800,000 Intria BHD* 256,842
63,000 Kuala Lumpur Kepong Berhad 99,474
149,000 Malaysia Mining Corp 109,005
229,000 Malaysian International Shipping (Foreign Registered) 599,618
456,000 Maxis Communications Berhad 774,000
452,000 Perusahaan Otomobil Nasional 915,895
70,000 Petronas Dagangan Berhad 123,421
1,654,000 Renong Berhad* 198,045
99,000 Star Publications Malaysia Berhad 160,224
1,374,000 TA Enterprise Berhad 263,953
80,000 Tenaga Nasional Berhad 189,474
------------
4,961,261
------------
PHILIPPINES -- 13.0%
4,141,325 Aboitiz Equity Ventures Inc* 180,811
5,317,756 Ayala Corp 411,142
53,758,701 Ayala Land Inc 5,672,193
681,995 Equitable PCI Bank* 390,810
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
PHILIPPINES -- CONTINUED
11,988,850 Filinvest Land Inc* 211,555
2,577,190 First Philippine Holdings* 797,021
2,097,500 Ginebra San Miguel Inc 1,125,637
115,912 Globe Telecom Inc 1,307,357
14,213,000 Megaworld Corp* 222,361
380,260 Metropolitan Bank & Trust Co* 186,775
464,230 Philippine Long Distance Telephone* 4,518,156
36,600 Philippine Long Distance Telephone ADR* 366,000
1,218,275 San Miguel Corp, Class B 1,396,240
23,364,000 SM Prime Holdings 2,295,172
------------
19,081,230
------------
SINGAPORE -- 2.4%
148,000 DBS Group Holdings Ltd 1,063,837
3,707 Haw Par Corp Ltd 8,713
273,000 Oversea-Chinese Banking Corp 1,713,161
90,690 United Overseas Bank Ltd 657,061
------------
3,442,772
------------
SOUTH KOREA -- 6.6%
40,600 Chohung Bank* 132,663
3,000 Crown Confectionery Co Ltd 133,673
91,600 Daesang Corp 295,421
9,200 Daum Communications Corp* 511,436
41,600 Hanjin Heavy Industry 194,186
20,880 Hyosung Corp 232,148
24,700 Hyundai Autonet Co Ltd 68,131
13,400 Hyundai Department Store Co Ltd* 177,416
3,100 Kangwon Land Inc 348,084
66,100 KIA Motors Corp 512,194
53,200 Korea Electric Power Corp 871,428
51,200 Korea Exchange Bank* 229,439
6,800 Korea Gas Corp 151,784
3,270 Korea Information Service Inc 77,153
6,400 Korea Reinsurance 164,583
15,100 Korean Air Lines 190,312
15,700 KT Corp 597,619
3,700 KT Corp ADR 69,745
31,100 KT&G Corp 514,704
35,160 LG Card Co Ltd 628,150
5,200 LG Electronics Inc 282,453
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
SOUTH KOREA -- CONTINUED
19,700 LG International Corp 130,748
19,000 LG Investment & Securities Co Ltd 228,984
2,300 POSCO 271,335
4,200 Samsung Electronics 1,550,605
1,800 Samsung SDI Co Ltd 168,810
42,440 SK Corp 601,526
38,400 Ssangyong Motor Co* 270,503
------------
9,605,233
------------
TAIWAN -- 14.0%
377,000 Acer Inc 557,366
830,000 Ambassador Hotel* 199,251
39,600 Ambit Microsystems Corp 108,396
1,343,212 Asustek Computer Inc 3,617,762
605,000 AU Optronics Corp* 805,887
1,032,000 Benq Corp 1,525,733
794,000 China Bills Finance Corp* 223,151
5,423,001 China Development Financial Holding Corp 2,032,157
2,601,915 China Steel Corp 2,079,521
317,460 Chinatrust Financial Holding Co 258,370
22,900 Chunghwa Telecom Co Ltd ADR 323,348
447,350 Compal Electronics Inc 681,018
342,720 Evergreen Marine Corp 235,784
1,188,000 Grand Commercial Bank* 448,656
1,596,020 Inventec Co Ltd 971,872
103,950 MediaTek Inc 1,034,692
2,246,900 Ritek Corp* 1,545,821
284,100 Synnex Technology International Corp 428,337
2,609,890 Taiwan Cement Corp 962,721
848,000 Taiwan Pulp & Paper Corp* 122,143
545,120 Taiwan Semiconductor Manufacturing Co Ltd* 1,069,238
89,686 United Microelectronics Corp* 73,517
1,424,000 Walsin Lihwa Corp* 364,775
1,215,000 Waterland Financial Holdings* 314,795
852,000 Yieh Loong Enterprise Co Ltd* 367,908
87,000 Yulon Motor Co Ltd 100,861
------------
20,453,080
------------
THAILAND -- 20.6%
2,664,800 Advanced Info Service Pcl (Foreign Registered) 3,599,328
4,075,100 Bangkok Expressway Pcl (Foreign Registered)(a) 2,281,025
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
THAILAND -- CONTINUED
443,000 Bank of Ayudhya Pcl* 107,812
1,762,400 Bank of Ayudhya Pcl (Foreign Registered)* 428,912
198,100 Banpu Pcl (Foreign Registered)(a) 267,572
2,227,600 Central Pattana Pcl (Foreign Registered)(a) 2,453,125
7,005,800 Charoen Pokphand Foods Pcl (Foreign Registered)(a) 903,644
181,630 Delta Electronics Pcl (Foreign Registered)(a) 138,134
350,600 Electricity Generating Pcl (Foreign Registered) 537,547
414,100 Electricity Generating Pcl NVDR 604,673
2,164,000 Industrial Finance Corp of Thailand (Foreign
Registered)* 331,789
1,310,600 Kasikornbank Pcl NVDR* 1,323,677
100,500 Krungthai Card Pcl (Foreign Registered) 123,515
10,609,100 Land & House Pcl (Foreign Registered) 3,124,121
9,684,000 Land & House Pcl NVDR 2,521,752
200,000 Loxley Pcl (Foreign Registered)*(a) 125,335
671,000 National Petrochemical (Foreign Registered)(a) 1,175,761
504,300 PTT Exploration & Production Pcl
(Foreign Registered)(a) 1,939,143
872,000 PTT Pcl (Foreign Registered)(a) 1,549,185
2,546,000 Quality House Co Ltd (Foreign Registered)(a) 542,164
931,050 Sahaviriya Steel Industry (Foreign Registered)*(a) 414,656
396,000 Shin Satellite (Foreign Registered)*(a) 219,732
556,000 Siam Cement Pcl (Foreign Registered) 2,543,879
503,500 Siam Cement Pcl (Foreign Registered) NVDR 2,083,110
45,000 Siam Commercial Bank Pcl (Foreign Registered)* 42,711
2,439,000 Tanayong Co Ltd (Foreign Registered)*(a)(b) 594
1,058,000 Thai Union Frozen Products Pcl (Foreign Registered) 798,199
------------
30,181,095
------------
TOTAL COMMON STOCKS (COST $111,332,177) 142,172,575
------------
PREFERRED STOCKS -- 0.9%
SOUTH KOREA -- 0.9%
25,900 Hyundai Motor Co 5.05% 393,473
4,800 Samsung Electronics (Non Voting) 4.08% 867,728
------------
1,261,201
------------
TOTAL PREFERRED STOCKS (COST $920,391) 1,261,201
------------
RIGHTS AND WARRANTS -- 0.2%
MALAYSIA -- 0.0%
162,600 Affin Holdings Berhad Warrants, Expires 7/08/05* 7,916
------------
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
THAILAND -- 0.2%
315,000 Adkinson Securities Warrants, Expires 1/16/04* 30,204
315,000 Adkinson Securities Warrants, Expires 1/16/06* 45,997
882,160 Bank of Ayudhya Warrants, Expires 8/25/08* --
1,138,620 Charoen Pokphand Foods Pcl Warrants, Expires 4/29/05
(Foreign Registered)* 189,816
509,200 Quality House Co Ltd Warrants, Expires 5/14/08* 34,079
480,663 Telecomasia Corp Pcl Warrants, Expires 4/03/08*(a) --
------------
300,096
------------
TOTAL RIGHTS AND WARRANTS (COST $266,052) 308,012
------------
SHORT-TERM INVESTMENTS -- 2.5%
CASH EQUIVALENTS -- 2.5%
$ 3,700,000 HSBC Bank USA, 1.00%, due 9/02/03 3,700,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,700,000) 3,700,000
------------
TOTAL INVESTMENTS -- 100.7%
(Cost $116,218,620) 147,441,788
Other Assets and Liabilities (net) -- (0.7%) (969,802)
------------
TOTAL NET ASSETS -- 100.0% $146,471,986
============
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
ADR American Depositary 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 (Note 1).
(b) Bankrupt issuer.
6 See accompanying notes to the financial statements.
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
AUGUST 31, 2003 (UNAUDITED)
At August 31, 2003, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
- -------------------------------------------------------------------
Financials 20.9%
Telecommunication Services 18.8
Materials 11.6
Information Technology 11.3
Consumer Discretionary 10.4
Energy 9.0
Consumer Staples 7.8
Industrials 6.1
Utilities 4.1
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $116,218,620) (Note 1) $147,441,788
Cash 83,056
Foreign currency, at value (cost $365,774) (Note 1) 367,280
Receivable for investments sold 75,327
Dividends and interest receivable 404,771
Receivable for expenses reimbursed by Manager (Note 2) 7,006
------------
Total assets 148,379,228
------------
LIABILITIES:
Payable for investments purchased 183,218
Payable for Fund shares repurchased 1,500,000
Payable to affiliate for (Note 2):
Management fee 97,661
Shareholder service fee 18,085
Accrued expenses 108,278
------------
Total liabilities 1,907,242
------------
NET ASSETS $146,471,986
============
NET ASSETS CONSIST OF:
Paid-in capital $145,384,850
Accumulated undistributed net investment income 2,136,306
Accumulated net realized loss (32,276,249)
Net unrealized appreciation 31,227,079
------------
$146,471,986
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $146,471,986
============
SHARES OUTSTANDING:
Class III 14,745,172
============
NET ASSET VALUE PER SHARE:
Class III $ 9.93
============
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $408,187) $ 2,892,802
Interest 11,242
-----------
Total income 2,904,044
-----------
EXPENSES:
Management fee (Note 2) 501,000
Custodian fees 164,249
Audit fees 25,392
Transfer agent fees 13,892
Legal fees 2,668
Trustees fees and related expenses (Note 2) 1,277
Registration fees 644
Miscellaneous 1,012
Fees reimbursed by Manager (Note 2) (41,492)
-----------
668,642
Shareholder service fee (Note 2) - Class III 92,778
-----------
Net expenses 761,420
-----------
Net investment income 2,142,624
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 3,699,884
Foreign currency, forward contracts and foreign
currency related transactions (5,328)
-----------
Net realized gain 3,694,556
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 34,022,707
Foreign currency, forward contracts and foreign
currency related transactions 2,145
-----------
Net unrealized gain 34,024,852
-----------
Net realized and unrealized gain 37,719,408
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $39,862,032
===========
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,142,624 $ 915,389
Net realized gain (loss) 3,694,556 (4,512,054)
Change in net unrealized appreciation (depreciation) 34,024,852 (7,689,959)
------------ ------------
Net increase (decrease) in net assets from
operations 39,862,032 (11,286,624)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (809,606) (749,692)
------------ ------------
Net share transactions (Note 5):
Class III 2,065,756 (487,810)
------------ ------------
Net increase (decrease) in net assets resulting from
Fund share transactions 2,065,756 (487,810)
------------ ------------
Total increase (decrease) in net assets 41,118,182 (12,524,126)
NET ASSETS:
Beginning of period 105,353,804 117,877,930
------------ ------------
End of period (including accumulated undistributed
net investment income of $2,136,306 and $803,288,
respectively) $146,471,986 $105,353,804
============ ============
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 --------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ----------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.25 $ 8.09 $ 7.87 $ 12.35 $ 7.67 $ 10.44
-------- -------- -------- -------- -------- -------
Income from investment operations:
Net investment income 0.15 0.06 0.07 0.09 0.03 0.08(b)
Net realized and unrealized gain
(loss) 2.59 (0.85) 0.26 (3.32) 5.01 (2.69)
-------- -------- -------- -------- -------- -------
Total from investment operations 2.74 (0.79) 0.33 (3.23) 5.04 (2.61)
-------- -------- -------- -------- -------- -------
Less distributions to shareholders:
From net investment income (0.06) (0.05) (0.11) (0.01) (0.02) (0.16)
From net realized gains -- -- -- (1.24) (0.34) --
-------- -------- -------- -------- -------- -------
Total distributions (0.06) (0.05) (0.11) (1.25) (0.36) (0.16)
-------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 9.93 $ 7.25 $ 8.09 $ 7.87 $ 12.35 $ 7.67
======== ======== ======== ======== ======== =======
TOTAL RETURN(a) 37.77%** (9.82)% 4.41% (27.45)% 65.57% (25.03)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $146,472 $105,354 $117,878 $113,927 $119,218 $77,404
Net expenses to average daily net
assets 1.23%* 1.35% 1.28% 1.30% 1.25% 1.26%
Net investment income to average
daily net assets 3.46%* 0.80% 1.01% 1.22% 0.22% 1.04%
Portfolio turnover rate 18%** 72% 68% 84% 121% 61%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.07%* 0.06% 0.09% 0.07% 0.07% 0.30%
Purchase and redemption fees
consisted of the following per
share amounts:(c) $ 0.00(d) $ 0.00(d) $ 0.00(d) $ 0.03 -- --
</Table>
* Annualized
** Not Annualized.
(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.
(b) Computed using average shares outstanding throughout the period.
(c) Effective March 1, 2000 the fund adopted the provisions of the revised
AICPA Audit and Accounting Guide for Investment Companies which requires
the disclosure of the per share effect of purchase and redemption fees.
Periods prior to March 1, 2000 have not been restated to reflect this
change. Amounts calculated using average shares oustanding throughout
the period.
(d) Purchase and redemption fees were less than $0.01 per share.
See accompanying notes to the financial statements. 11
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Asia Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended,
as an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24,
1985. The Declaration of Trust permits the Trustees to create an unlimited
number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series of shares into classes.
The Fund seeks high total return through investment in equity securities
traded in the Asian securities markets other than Japan. The Fund's
benchmark is the GMO Asia 7 Index, an index maintained by the Manager and
composed of the S&P/IFCI (Investable) Country Indices of seven Asian
countries (China, Indonesia, Korea, Malaysia, the Philippines, Taiwan and
Thailand), all of which are equally weighted.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of mutual funds are valued at their net asset value as reported on
each business day. 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.
12
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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. There were no forward foreign currency contracts
outstanding as of August 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
13
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. As of August 31, 2003, there were no outstanding
futures contracts.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
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.
14
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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 the price of the security or index underlying these
transactions. At August 31, 2003, there were no open swap agreements.
15
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund did not have any 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 carryover for
U.S. federal income tax purposes. Therefore, no provision for U.S. federal
income or excise tax is necessary. Taxes on foreign interest and dividend
income 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests.
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.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code of $6,035,369, $17,265,440 and $9,986,503 expiring in 2009, 2010 and
2011, respectively. The Fund has elected to defer to March 1, 2003 post-
October capital losses of $2,072,583.
16
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the
amortization of premiums and discounts. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis. Interest income on
U.S. Treasury inflation indexed securities is accrued daily based upon an
inflation adjusted principal. Additionally, any increase in the principal
or face amount of the securities adjusted for inflation is recorded as
interest income.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premiums on cash purchases and fees on redemption of Fund shares is
0.80%. If the Manager determines that any portion of a cash purchase or
redemption is offset by a corresponding cash redemption or purchase
occurring on the same day, the purchase premium or redemption fee charged
by the Fund will be reduced by 100% with respect to that portion. In
addition, the purchase premium or redemption fee charged by the Fund may
be waived if the Manager determines the Fund is either substantially
overweighted or underweighted in cash so that a redemption or purchase
will not require a securities transaction. All purchase premiums and
redemption fees are paid to and recorded by the Fund as paid-in capital.
For the six months ended August 31, 2003 and the year ended February 28,
2003, the Fund received $38,704 and $32,558 in purchase premiums and
$12,796 and $25,581 in redemption fees, respectively. There is no premium
for reinvested distributions.
INVESTMENT RISK
Investments in emerging countries present certain risks that are not
inherent in many other securities. Many emerging countries present
elements of political and/or economic instability. The securities markets
of emerging countries are generally smaller and less developed than the
securities markets of the U.S. and developed foreign markets. Further,
countries may impose various types of foreign currency regulations or
controls which may impede the Fund's ability to repatriate amounts it
receives. The Fund may acquire interests in securities in anticipation of
improving conditions in the related countries. These factors may result in
significant volatility in the values of its holdings. The markets for
emerging countries are relatively illiquid. Accordingly, the Fund may not
be able to realize in an actual sale amounts approximating those used to
value its holdings.
17
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .81% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, custody
fees, fees and expenses of the independent Trustees of the Trust
(including legal fees), brokerage commissions and other investment-related
costs, hedging transaction fees, extraordinary, non-recurring and certain
other unusual expenses (including taxes), securities lending fees and
expenses, interest expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003, was $909. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $22,964,316 and $22,029,111, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$116,881,132 $39,742,922 $(9,182,266) $30,560,656
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 65.4% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the outstanding
shares of the Fund. Investment activities of these shareholders may have a
material effect on the Fund.
18
<Page>
GMO ASIA FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
--------------------- ---------------------
Shares Amount Shares Amount
Class III: -------- ----------- -------- -----------
Shares sold 744,175 $ 6,984,287 507,393 $ 4,075,321
Shares issued to shareholders
in reinvestment of distributions 40,217 384,474 39,072 330,158
Shares repurchased (579,332) (5,303,005) (583,805) (4,893,289)
-------- ----------- -------- -----------
Net increase (decrease) 205,060 $ 2,065,756 (37,340) $ (487,810)
======== =========== ======== ===========
</Table>
19
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
918,667 GMO Emerging Country Debt Fund, Class IV 9,848,115
1,215,430 GMO Emerging Markets Fund, Class VI 14,159,755
2,502,670 GMO Inflation Indexed Bond Fund, Class III 28,630,544
330,784 GMO International Intrinsic Value Fund, Class IV 6,519,758
1,983,927 GMO International Small Companies Fund, Class III 26,544,948
513,483 GMO Real Estate Fund, Class III 6,346,650
------------
TOTAL MUTUAL FUNDS (COST $90,433,375) 92,049,770
------------
SHORT-TERM INVESTMENTS -- 0.0%
REPURCHASE AGREEMENTS -- 0.0%
$ 8,621 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due 9/2/03, with a maturity value of $8,622,
and an effecitve yield of 0.67%, collateralized by a
U.S. Treasury Bill with a rate of 1.175%, maturity date
of 9/25/03, and a market value of $8,816. 8,621
------------
TOTAL SHORT-TERM INVESTMENTS (COST $8,621) 8,621
------------
TOTAL INVESTMENTS -- 100.0%
(Cost $90,441,996) 92,058,391
Other Assets and Liabilities (net) -- (0.0%) (1,292)
------------
TOTAL NET ASSETS -- 100.0% $ 92,057,099
============
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $90,441,996) (Note 1) $92,058,391
Receivable for Fund shares sold 16,000,000
Receivable for expenses reimbursed by Manager (Note 2) 5,363
-----------
Total assets 108,063,754
-----------
LIABILITIES:
Payable for investments purchased 16,000,000
Accrued expenses 6,655
-----------
Total liabilities 16,006,655
-----------
NET ASSETS $92,057,099
===========
NET ASSETS CONSIST OF:
Paid-in capital $89,556,331
Accumulated undistributed net investment income 1,398
Accumulated net realized gain 882,975
Net unrealized appreciation 1,616,395
-----------
$92,057,099
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $92,057,099
===========
SHARES OUTSTANDING:
Class III 4,432,811
===========
NET ASSET VALUE PER SHARE:
Class III $ 20.77
===========
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- PERIOD FROM JULY 23, 2003 (COMMENCEMENT OF
OPERATIONS) THROUGH AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest $ 1,632
----------
Total income 1,632
----------
EXPENSES:
Audit fees 3,159
Registration fees 1,716
Custodian and transfer agent fees 1,209
Legal fees 390
Trustees fees and related expenses (Note 2) 234
Miscellaneous 273
Fees reimbursed by Manager (Note 2) (6,747)
----------
234
----------
Net expenses 234
----------
Net investment income 1,398
----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 882,975
----------
Change in net unrealized appreciation (depreciation) on
investments 1,616,395
----------
Net realized and unrealized gain 2,499,370
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,500,768
==========
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM JULY 23, 2003
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31, 2003
(UNAUDITED)
----------------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,398
Net realized gain 882,975
Change in net unrealized appreciation (depreciation) 1,616,395
-----------
Net increase in net assets from operations 2,500,768
-----------
Net share transactions (Note 5):
Class III 89,556,331
-----------
Net increase in net assets resulting from Fund share
transactions 89,556,331
-----------
Total increase in net assets 92,057,099
NET ASSETS:
Beginning of period --
-----------
End of period (including accumulated undistributed net
investment
income of $1,398) $92,057,099
===========
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
JULY 23, 2003
(COMMENCEMENT
OF OPERATIONS) THROUGH
AUGUST 31, 2003
(UNAUDITED)
----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.00
-------
Income from investment operations:
Net investment income(a) 0.00(e)
Net realized and unrealized gain 0.77
-------
Total from investment operations 0.77
-------
NET ASSET VALUE, END OF PERIOD $ 20.77
=======
TOTAL RETURN(b) 3.85%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $92,057
Net expenses to average daily net assets(c)(d) 0.00%*
Net investment income to average daily net assets(a) 0.02%*
Portfolio turnover rate 73%**
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.11%*
Purchase and redemption fees consisted of the following
per share amounts: $ 0.12
</Table>
(a) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the Fund
invests.
(b) The total return would have been lower had certain expenses not been
reimbursed during the period shown. Calculation excludes purchase
premiums and redemption fees.
(c) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 2.
(d) Net expenses to average daily net assets was less than 0.01%.
(e) Net investment income was less than $0.01 per share.
* Annualized.
** Not Annualized.
See accompanying notes to the financial statements. 5
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Benchmark-Free Allocation Fund (the "Fund"), which commenced
operations on July 23, 2003, is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended,
as an open-end, diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24,
1985. The Declaration of Trust permits the Trustees to create an unlimited
number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series of shares into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks positive return regardless of market
direction. The Fund will not seek to control risk relative to a particular
securities market index or benchmark. Prior to August 28, 2003, the Fund
pursued its objective by investing in Class III shares of domestic equity,
international equity, and fixed income funds of the Trust. Effective
August 28, 2003, the Fund began investing in the least expensive class of
underlying domestic equity, international equity and fixed income funds of
the Trust that is currently operational. The financial statements of the
underlying funds should be read in conjunction with the Fund's financial
statements.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States 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 underlying funds are valued at their net asset value as reported
on each business day. Short-term investments with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates 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.
Securities held by the underlying funds 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.
6
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Certain investments in securities held by the underlying funds were valued
on the basis of a price provided by a principal market maker. The prices
provided by the principal market makers may differ from the value that
would be realized if the securities were sold and the differences could be
material to the financial statements.
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 or enters
insolvency proceedings and the value of the collateral declines, recovery
of cash by the Fund may be delayed or limited.
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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
7
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Income dividends
and capital gain distributions from underlying funds are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
Non-cash dividends, if any, are recorded at the fair market value of the
securities received. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. In
addition, the Fund will also incur certain fees and expenses indirectly as
a shareholder in the underlying funds. Because the underlying funds have
varied expense and fee levels and the Fund may own different proportions
of underlying funds at different times, the amount of fees and expenses
indirectly incurred by the Fund will vary.
PURCHASE AND REDEMPTION OF FUND SHARES
The premium on cash purchases and fee on redemptions of Fund shares is
.37% of the amount invested or redeemed. The Fund's purchase premium and
redemption fee is approximately equal to the weighted average of the
purchase premiums and redemptions fees, if any, of the underlying funds in
which the Fund was invested as of June 30, 2003. The level of purchase
premium and redemption fee for the Fund will be adjusted approximately
annually to account for changes in the Fund's investments (i.e., changes
in the percentage of Fund assets allocated to each underlying fund). If
the Manager determines that any portion of a cash purchase is offset by a
corresponding cash redemption occurring on the same day, the purchase
premium or redemption fee charged by the Fund will be reduced by 100% with
respect to that portion. In addition, the purchase premium or redemption
fee charged by the Fund may be waived if the Manager determines the Fund
is either substantially underweight/overweight in cash so that a purchase
or redemption will not require a securities transaction. All purchase
premiums and redemption fees are paid to and recorded by the Fund as
paid-in capital. For the period ended August 31, 2003, the Fund received
$331,358 in purchase premiums. There is no premium for reinvested
distributions or in-kind transactions.
INVESTMENT RISK
The Fund is subject to the investment risk associated with an investment
in the underlying funds, some of which may invest in foreign securities.
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of
8
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
comparable U.S. companies and U.S. securities markets. The risks described
above apply to an even greater extent to investments in emerging markets.
The securities markets of emerging countries are generally smaller, less
developed, less liquid, and more volatile than the securities markets of
the U.S. and developed foreign markets. Additionally, the investment risk
associated with an investment in the underlying funds may be more
pronounced to the extent that the underlying funds engage in derivative
transactions.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not directly charge an
advisory fee or shareholder service fee, but receives advisory and
shareholder service fees from the underlying funds in which the Fund
invests.
GMO has entered into a binding agreement, effective until at least
June 30, 2004, to reimburse the Fund for its total annual direct operating
expenses (excluding fees and expenses of the independent Trustees of the
Trust (including legal fees), brokerage commissions and other
investment-related costs, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses, interest expense and transfer
taxes).
The Fund incurs fees and expenses indirectly as a shareholder in the
underlying funds. For the period ended August 31, 2003, shareholder
service fees incurred indirectly by the Fund were .148% (annualized) of
the Fund's average daily net assets, indirect operating expenses
(excluding shareholder service fees and investment-related expenses) were
.467% (annualized) of the Fund's average daily net assets, and indirect
investment-related expenses (including, but not limited to, interest
expense, foreign audit expense, and investment-related legal expense) were
.070% (annualized) of the Fund's average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the period ended August 31, 2003 was $156. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager.
As of August 31, 2003, substantially all of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the period ended August 31, 2003, aggregated
$113,463,903 and $23,913,503, respectively.
9
<Page>
GMO BENCHMARK-FREE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$90,441,996 $1,619,065 $(2,670) $1,616,395
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 89.3% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Period from July 23,
2003
(commencement of
operations)
through August 31, 2003
(Unaudited)
------------------------
Shares Amount
Class III ---------- ------------
Shares sold 4,432,811 $89,556,331
Shares issued to shareholders in reinvestment of
distributions -- --
Shares repurchased -- --
--------- -----------
Net increase 4,432,811 $89,556,331
========= ===========
</Table>
10
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
COMMON STOCKS -- 96.7%
TAIWAN -- 96.7%
785,716 Acer Inc 1,161,621
484,000 Ambit Microsystems Corp 1,324,843
317,000 Asia Cement Corp 142,918
5,911,000 Asustek Computer Inc 15,920,487
1,505,000 AU Optronics Corp* 2,004,728
2,234,000 Benq Corp 3,302,799
452,000 Cathay Financial Holding Co Ltd 563,710
27,823,000 China Development Financial Holding Corp 10,426,091
13,246,000 China Petrochemical Development Corp* 1,659,725
10,108,015 China Steel Corp 8,078,600
326,340 Chinatrust Financial Holding Co 265,597
1,708,900 Compal Electronics Inc 2,601,522
2,152,000 Compeq Manufacturing Co Ltd* 834,768
424,410 Delta Electronics Inc 559,121
256,000 D-Link Corp 274,302
2,197,080 Evergreen Marine Corp 1,511,546
274,000 Far Eastern Department Stores Ltd* 74,199
143,100 First Financial Holding Co Ltd GDR* 1,685,718
480 Formosa Plastics Corp 710
736,050 GigaByte Technology Co Ltd 1,508,388
756,000 Goldsun Development & Construction Co Ltd* 97,825
4,224,000 Grand Commercial Bank* 1,595,222
273,000 Hsinchu International Bank* 118,685
423,150 International Bank of Taipei 198,208
6,747,400 Inventec Co Ltd 4,108,728
950,400 MediaTek Inc 9,460,039
3,222,000 Mosel Vitelic Inc* 222,610
3,970,571 Orient Semiconductor Electronics Ltd* 732,320
153,000 Prodisc Technology Inc* 141,542
771,100 Quanta Computer Inc 1,907,546
784,000 Ritek Corp* 539,376
3,800 Synnex Technology International Corp 5,729
9,002,520 Taiwan Cement Corp 3,320,796
1,742,400 Taiwan Semiconductor Manufacturing Co Ltd* 3,417,671
630,000 Taiwan Tea Corp* 82,812
1,756,000 Tatung Co* 493,518
4,456,730 United Microelectronics Corp* 3,653,271
11,730,000 Walsin Lihwa Corp* 3,004,787
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
TAIWAN -- CONTINUED
1,468,000 Waterland Financial Holdings* 380,344
4,067,000 Winbond Electronics Corp* 2,369,381
2,113,000 Yang Ming Marine Transport 1,806,300
1,274,000 Yieh Loong Enterprise Co Ltd* 550,135
246,000 Yulon Motor Co Ltd 285,192
------------
92,393,430
------------
TOTAL COMMON STOCKS (COST $74,032,238) 92,393,430
------------
SHORT-TERM INVESTMENTS -- 2.6%
CASH EQUIVALENTS -- 2.6%
$ 2,500,000 HSBC Bank USA, 1.00%, due 09/02/03 2,500,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST $2,500,000) 2,500,000
------------
TOTAL INVESTMENTS -- 99.3%
(Cost $76,532,238) 94,893,430
Other Assets and Liabilities (net) -- 0.7% 688,238
------------
TOTAL NET ASSETS -- 100.0% $ 95,581,668
============
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
GDR Global Depository Receipt
* Non-income producing security.
2 See accompanying notes to the financial statements.
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
AUGUST 31, 2003 (UNAUDITED)
At August 31, 2003, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
- --------------------------------------------------------------------
Information Technology 60.6%
Financials 16.5
Materials 15.0
Industrials 7.4
Consumer Discretionary 0.4
Consumer Staples 0.1
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $76,532,238) (Note 1) $94,893,430
Cash 40,950
Foreign currency, at value (cost $414,684) (Note 1) 415,816
Receivable for investments sold 2,495,462
Dividends and interest receivable 391,128
-----------
Total assets 98,236,786
-----------
LIABILITIES:
Payable for investments purchased 2,500,000
Payable to affiliate for (Note 2):
Management fee 62,901
Shareholder service fee 11,648
Accrued expenses 80,569
-----------
Total liabilities 2,655,118
-----------
NET ASSETS $95,581,668
===========
NET ASSETS CONSIST OF:
Paid-in capital $76,493,838
Accumulated undistributed net investment income 416,411
Accumulated net realized gain 310,873
Net unrealized appreciation 18,360,546
-----------
$95,581,668
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $95,581,668
===========
SHARES OUTSTANDING:
Class III 3,762,153
===========
NET ASSET VALUE PER SHARE:
Class III $ 25.41
===========
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $233,446) $ 933,799
Interest 7,247
-----------
Total income 941,046
-----------
EXPENSES:
Management fee (Note 2) 307,576
Custodian fees 119,756
Audit fees 23,920
Transfer agent fees 13,800
Legal fees 1,472
Trustees fees and related expenses (Note 2) 600
Miscellaneous 552
-----------
467,676
Shareholder service fee (Note 2) -- Class III 56,959
-----------
Net expenses 524,635
-----------
Net investment income 416,411
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 309,571
Foreign currency, forward contracts and foreign
currency related transactions 20,819
-----------
Net realized gain 330,390
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 18,380,830
Foreign currency, forward contracts and foreign
currency related transactions (649)
-----------
Net unrealized gain 18,380,181
-----------
Net realized and unrealized gain 18,710,571
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,126,982
===========
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED PERIOD FROM OCTOBER 4, 2002
AUGUST 31, 2003 (COMMENCEMENT OF OPERATIONS)
(UNAUDITED) THROUGH FEBRUARY 28, 2003
---------------- ----------------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income (loss) $ 416,411 $ (274,013)
Net realized gain 330,390 1,295,721
Change in net unrealized appreciation (depreciation) 18,380,181 (19,635)
----------- -----------
Net increase in net assets from operations 19,126,982 1,002,073
----------- -----------
Distributions to shareholders from:
Net realized gains
Class III (1,041,225) --
----------- -----------
Net share transactions (Note 5):
Class III 36,328,554 40,165,284
----------- -----------
Net increase in net assets resulting from Fund share
transactions 36,328,554 40,165,284
----------- -----------
Total increase in net assets 54,414,311 41,167,357
NET ASSETS:
Beginning of period 41,167,357 --
----------- -----------
End of period (including accumulated undistributed
net investment income of $416,411 and $0,
respectively) $95,581,668 $41,167,357
=========== ===========
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
OCTOBER 4, 2002
SIX MONTHS ENDED (COMMENCEMENT
AUGUST 31, 2003 OF OPERATIONS) THROUGH
(UNAUDITED) FEBRUARY 28, 2003
---------------- ----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.28 $ 20.00
------- -------
Income from investment operations:
Net investment income (loss)(a) 0.12 (0.12)
Net realized and unrealized gain 5.30 0.40
------- -------
Total from investment operations 5.42 0.28
------- -------
Less distributions to shareholders:
From net realized gains (0.29) --
------- -------
Total distributions (0.29) --
------- -------
NET ASSET VALUE, END OF PERIOD $ 25.41 $ 20.28
======= =======
TOTAL RETURN(b) 26.83%** 1.40%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $95,582 $41,167
Net expenses to average daily net assets 1.38%* 1.76%*
Net investment income to average daily net assets 1.10%* (1.43)%*
Portfolio turnover rate 31%** 50%**
Purchase and redemption fees consisted of the
following per share amounts: $ 0.02 $ 0.01
</Table>
* Annualized.
** Not Annualized.
(a) Computed using average shares outstanding throughout the period.
(b) Calculation excludes purchase premiums and redemption fees.
See accompanying notes to the financial statements. 7
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Taiwan Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended,
as an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24,
1985. The Declaration of Trust permits the Trustees to create an unlimited
number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series of shares into classes.
The Fund seeks high total return through investment in equity securities
traded in the Taiwan securities markets. The Fund's benchmark is the MSCI
Taiwan Index.
Shares of the Fund are only offered to other Funds of the Trust and other
GMO separately managed accounts.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of mutual funds are valued at their net asset value as reported on
each business day. 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.
8
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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. There were no forward foreign currency contracts
outstanding as of August 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
9
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. As of August 31, 2003, there were no outstanding
futures contracts.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
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.
10
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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 the price of the security or index underlying these
transactions. At August 31, 2003, there were no outstanding swap
contracts.
11
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund did not have any 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 carryover for
U.S. federal income tax purposes. Therefore, no provision for U.S. federal
income or excise tax is necessary. Taxes on foreign interest and dividend
income 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
The Fund is currently subject to Taiwan security transaction tax of 0.3%
on equities and 0.1% on corporate bonds and mutual fund shares of the
transaction amount.
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. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the
amortization of premiums and discounts. Non-cash dividends, if any, are
recorded at the fair market
12
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
value of the securities received. Dividends representing a return of
capital are reflected as a reduction of cost, when the amount of the
return of capital is conclusively determined. In determining the net gain
or loss on securities sold, the cost of securities is determined on the
identified cost basis.
Taiwanese companies typically declare dividends in the Fund's third fiscal
quarter of each year. As a result, the Fund receives substantially less
dividend income in the first half of its year.
Dividend and interest income generated in Taiwan is subject to a 20%
withholding tax. Stock dividends received (except those which have
resulted from capitalization of capital surplus) are taxable at 20% of the
par value of the stock dividends received.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premiums on cash purchases of Fund shares is .15% of the amount
invested. In the case of cash redemptions, the fee is .45% of the amount
redeemed. If the Manager determines that any portion of a cash purchase or
redemption is offset by a corresponding cash redemption or purchase
occurring on the same day, the purchase premium or redemption fee charged
by the Fund will be reduced by 100% with respect to that portion. In
addition, the purchase premium or redemption fee charged by the Fund may
be waived if the Manager determines the Fund is either substantially
overweighted/ underweighted in cash so that a purchase or redemption will
not require a securities transaction. All purchase premiums and redemption
fees are paid to and recorded by the Fund as paid-in capital. For the six
months ended August 31, 2003 and the period ended February 28, 2003, the
Fund received $59,410 and $74,686 in purchase premiums and $19,285 and
$43,358 in redemption fees. There is no premium for reinvested
distributions or in-kind transactions.
INVESTMENT RISK
Investments in emerging countries, such as Taiwan, present certain risks
that are not inherent in many other securities. Many emerging countries
present elements of political and/or economic instability. The securities
markets of emerging countries are generally smaller and less developed
than the securities markets of the U.S. and developed foreign markets.
Further, countries may impose various types of foreign currency
regulations or controls which may impede the Fund's ability to repatriate
amounts it receives. The Fund may acquire interests in securities in
anticipation of improving conditions in the related countries. These
factors may result in significant volatility in the values of its
holdings. The Taiwanese markets are relatively illiquid. Accordingly, the
Fund may
13
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
not be able to realize in an actual sale amounts approximating those used
to value its holdings. The Fund may concentrate investments in the
securities of a small number of issuers. As a result, the value of the
Fund's shares can be expected to change in light of factors affecting
those issuers and may fluctuate more widely than the value of shares of a
portfolio that invests in a broader range of securities.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .81% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $508. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchase and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $54,752,297 and $22,400,998, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$76,744,360 $19,462,276 $(1,313,206) $18,149,070
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 94.0% of the outstanding shares of the Fund were held
by two shareholders. Investment activities of these shareholders may have
a material effect on the Fund.
14
<Page>
GMO TAIWAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Period from
October 4, 2002
(commencement
Six Months Ended of operations)
August 31, 2003 through
(Unaudited) February 28, 2003
---------------------- ----------------------
Shares Amount Shares Amount
--------- ----------- --------- -----------
Class III:
Shares sold 1,890,556 $39,679,461 2,471,225 $49,791,166
Shares issued to shareholders in reinvestment
of distributions 42,968 1,032,093 -- --
Shares repurchased (201,754) (4,383,000) (440,842) (9,625,882)
--------- ----------- --------- -----------
Net increase 1,731,770 $36,328,554 2,030,383 $40,165,284
========= =========== ========= ===========
</Table>
15
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE/
SHARES/
PRINCIPAL
AMOUNT DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 5.6%
UNITED STATES -- 5.6%
U.S. GOVERNMENT -- 5.6%
USD 1,120,000 U.S. Treasury Inflation Indexed Note, 3.88%, due
01/15/09(a) 1,251,600
-----------
TOTAL DEBT OBLIGATIONS (COST $1,113,350) 1,251,600
-----------
MUTUAL FUNDS -- 91.8%
90,853 GMO Alpha LIBOR Fund 2,195,012
62,905 GMO Emerging Country Debt Fund, Class III 674,344
698,104 GMO Short-Duration Collateral Fund 17,599,197
-----------
TOTAL MUTUAL FUNDS (COST $20,387,882) 20,468,553
-----------
CALL OPTIONS PURCHASED -- 0.1%
CROSS CURRENCY OPTIONS -- 0.1%
GBP 800,000 GBP Call/JPY Put, Expires 01/23/04, Strike 184.00 26,435
-----------
TOTAL CALL OPTIONS PURCHASED (COST $47,882) 26,435
-----------
PUT OPTIONS PURCHASED -- 1.0%
CROSS CURRENCY OPTIONS -- 1.0%
EUR 6,500,000 EUR Put/USD Call, Expires 10/1/03, Strike 1.1150 192,829
GBP 2,700,000 GBP Put/USD Call, Expires 11/6/03, Strike 1.545 32,586
-----------
225,415
-----------
TOTAL PUT OPTIONS PURCHASED (COST $113,642) 225,415
-----------
TOTAL INVESTMENTS -- 98.5%
(Cost $21,662,756) 21,972,003
Other Assets and Liabilities (net) -- 1.5% 342,154
-----------
TOTAL NET ASSETS -- 100.0% $22,314,157
===========
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
NOTES TO SCHEDULE OF INVESTMENTS:
CURRENCY ABBREVIATIONS:
AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - British Pound
JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollars
SEK - Swedish Krona
USD - United States Dollar
</Table>
(a) All or a portion of this security has been segregated to cover margin
requirements on open financial futures contracts (Note 6).
2 See accompanying notes to the financial statements.
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $21,662,756) (Note 1) $21,972,003
Cash 311,803
Receivable for Fund shares sold 200,000
Interest receivable 5,684
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 63,075
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 5,479
Net receivable for closed swap contracts (Note 1) 195
Receivable for expenses reimbursed by Manager (Note 2) 8,166
-----------
Total assets 22,566,405
-----------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 4,615
Shareholder service fee 2,769
Payable for open forward foreign currency contracts
(Notes 1 and 6) 82,692
Interest payable for open swap contracts (Notes 1 and 6) 11,196
Net payable for open swap contracts (Notes 1 and 6) 3,825
Net payable for closed swap contracts (Note 1) 15,465
Payable for closed forward foreign currency contracts
(Note 1) 94,605
Accrued expenses 37,081
-----------
Total liabilities 252,248
-----------
NET ASSETS $22,314,157
===========
NET ASSETS CONSIST OF:
Paid-in capital $25,427,747
Distributions in excess of net investment income (38,916)
Accumulated net realized loss (3,196,438)
Net unrealized appreciation 121,764
-----------
$22,314,157
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $22,314,157
===========
SHARES OUTSTANDING:
Class III 2,599,391
===========
NET ASSET VALUE PER SHARE:
Class III $ 8.58
===========
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends from investment company shares $ 73,870
Interest 36,389
--------
Total income 110,259
--------
EXPENSES:
Management fee (Note 2) 26,507
Audit fees 29,440
Custodian and transfer agent fees 11,879
Registration fees 2,300
Legal fees 460
Trustees fees and related expenses (Note 2) 105
Miscellaneous 184
Fees reimbursed by Manager (Note 2) (44,171)
--------
26,704
Indirectly incurred fees waived or borne by Manager (Note
2) (1,516)
--------
25,188
--------
Shareholder service fee (Note 2) - Class III 15,908
Shareholder service fee waived (Note 2) - Class III (529)
--------
15,379
--------
Net expenses 40,567
--------
Net investment income 69,692
--------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (74,539)
Realized gains distributions from investment company
shares 19,703
Closed futures contracts 196,021
Closed swap contracts (87,496)
Written options 16,830
Foreign currency, forward contracts and foreign
currency related transactions 403,527
--------
Net realized gain 474,046
--------
Change in net unrealized appreciation (depreciation) on:
Investments 334,764
Open futures contracts (181,213)
Open swap contracts (19,989)
Foreign currency, forward contracts and foreign
currency related transactions (125,851)
--------
Net unrealized gain 7,711
--------
Net realized and unrealized gain 481,757
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $551,449
========
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 69,692 $ 148,390
Net realized gain 474,046 99,063
Change in net unrealized appreciation (depreciation) 7,711 528,743
----------- -----------
Net increase in net assets from operations 551,449 776,196
----------- -----------
Distributions to shareholders from:
Net investment income
Class III (1,182,701) (1,285,568)
----------- -----------
Total distributions from net investment income (1,182,701) (1,285,568)
----------- -----------
Net share transactions (Note 5):
Class III 2,726,406 2,795,937
----------- -----------
Increase in net assets resulting from net share
transactions 2,726,406 2,795,937
----------- -----------
Total increase in net assets 2,095,154 2,286,565
NET ASSETS:
Beginning of period 20,219,003 17,932,438
----------- -----------
End of period (including distributions in excess of
net investment income of $38,916 and accumulated
undistributed net investment income of $1,074,093,
respectively) $22,314,157 $20,219,003
=========== ===========
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------
(UNAUDITED) 2003 2002 2001(C) 2000 1999
---------------- ------- ------- ------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.85 $ 9.04 $ 9.72 $ 9.70 $ 10.47 $ 10.66
------- ------- ------- ------- -------- --------
Income from investment operations:
Net investment income(a) 0.03+ 0.09+ 0.50+ 0.59+ 0.65+ 0.74
Net realized and unrealized gain
(loss) 0.21 0.32 (0.13) 0.71 (0.17) (0.39)
------- ------- ------- ------- -------- --------
Total from investment operations 0.24 0.41 0.37 1.30 0.48 0.35
------- ------- ------- ------- -------- --------
Less distributions to shareholders:
From net investment income (0.51) (0.60) (1.05) (1.18) (1.11) (0.16)
From net realized gains -- -- -- (0.10) (0.14) (0.38)
------- ------- ------- ------- -------- --------
Total distributions (0.51) (0.60) (1.05) (1.28) (1.25) (0.54)
------- ------- ------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 8.58 $ 8.85 $ 9.04 $ 9.72 $ 9.70 $ 10.47
======= ======= ======= ======= ======== ========
TOTAL RETURN(b) 2.60%** 4.81% 4.21% 14.06% 4.95% 3.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $22,314 $20,219 $17,932 $18,102 $283,340 $323,711
Net expenses to average daily net
assets 0.38%*(d) 0.40%(d) 0.38%(d) 0.40%(d) 0.40% 0.40%
Net investment income to average
daily net assets(a) 0.66%* 1.02% 5.45% 5.96% 6.51% 6.30%
Portfolio turnover rate 8%** 66% 44% 120% 65% 116%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.44%* 0.51% 0.54% 0.07% 0.08% 0.33%
</Table>
(a) Net investment income for the six months ended August 31, 2003 and the
years ended February 28, 2003, 2002 and 2001 and February 29, 2000 is
affected by the timing of the declaration of dividends by other Funds of
the Trust in which the Fund invests.
(b) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(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 for
the year ended February 28, 2001 was to decrease net investment income
per share by of net investment income to average net assets from 6.05%
to 5.96%. Per share and ratio/supplemental data for periods prior to
March 1, 2000 have not been restated to reflect this change.
(d) Net expenses exclude expenses incurred indirectly through investment in
underlying Funds. (See Note 2)
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
6 See accompanying notes to the financial statements.
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Currency Hedged International Bond Fund (the "Fund") is a series of
GMO Trust (the "Trust"). The Fund is registered under the Investment
Company Act of 1940, as amended, as an open-end, non-diversified
management investment company. The Fund is advised and managed by
Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust
was established as a Massachusetts business trust under the laws of the
Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust
permits the Trustees to create an unlimited number of series ("Funds"),
each of which issues a separate series of shares, and to subdivide a
series of shares into classes.
The Fund seeks high total return through direct and indirect investment in
foreign bond and currency markets, primarily in shares of GMO
Short-Duration Collateral Fund and "synthetic" bonds (created by the
Manager by combining a futures contract, swap contract, or option, on a
fixed income security with cash, a cash equivalent, or another fixed
income security). The Fund's benchmark is the J.P. Morgan Non-U.S.
Government Bond Index (Hedged).
At August 31, 2003, 9.8% of the Fund was invested in GMO Alpha LIBOR Fund
and 78.9% of the Fund was invested in GMO Short-Duration Collateral Fund,
separate funds of GMO Trust managed by GMO. Shares of GMO Alpha LIBOR Fund
and GMO Short-Duration Collateral Fund are not publicly available for
direct purchase. At August 31, 2003, 3.0% of the net assets of the Fund
were invested in GMO Emerging Country Debt Fund, a separate fund of GMO
Trust managed by GMO. The financial statements of GMO Alpha LIBOR Fund,
GMO Short-Duration Collateral Fund and GMO Emerging Country Debt Fund
should be read in conjunction with the Fund's financial statements.
In November 2002, certain bonds ("NPF bonds") held by GMO Alpha LIBOR Fund
("Alpha LIBOR Fund"), in which the Fund had significant investments,
defaulted amid allegations of fraud and significant violations of the
bonds' indentures. Currently, no market exists for the NPF bonds, and they
are being valued at fair value by the trustees of GMO Trust or persons
acting at their direction. The devaluation of the NPF bonds had a negative
impact on the Fund's net asset value per share.
In late November 2002, Alpha LIBOR Fund undertook a reorganization
transaction with a new series of GMO Trust, GMO Short-Duration Collateral
Fund ("SDCF") and approximately 78% of the Fund's interest in Alpha LIBOR
Fund was transferred to SDCF in exchange for SDCF shares. The
reorganization was treated as a sale of the Alpha LIBOR Fund shares for
financial reporting purposes and a distribution by Alpha LIBOR Fund for
tax purposes. Accordingly, for financial reporting purposes, the Fund
recognized a loss on the sale of the Alpha LIBOR shares of
7
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
approximately $781,738. In addition, the Fund recognized for tax, but not
for financial reporting purposes, ordinary income of $314,232 and
long-term capital gains of $56,046 from Alpha LIBOR Fund. $1,152,016 was
added to the tax cost basis of the Fund's holdings of Alpha LIBOR Fund.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of other funds of the Trust ("underlying funds") and other mutual
funds are valued at their net asset value as reported on each business
day. 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.
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 of underlying funds 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.
8
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Certain securities held by the underlying funds in which the Fund invests,
were valued on the basis of a price provided by a principal market maker.
The prices provided by the principal market makers may differ from the
value that would be realized if the securities were sold and the
differences could be material to the financial statements.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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 6 and represents the currency
exposure the Fund has acquired or hedged through forward currency
contracts as of August 31, 2003.
9
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for
all open futures contracts as of August 31, 2003.
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. See Note 6 for all 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 closed are offset
against the
10
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
proceeds on the closing transaction to determine the realized gain or
loss. The risk associated with purchasing put and call options is limited
to the premium paid. See Schedule of Investments for all open purchased
option contracts as of August 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 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
11
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. The Fund also may enter into structured
warrants, which are derivatives like swaps and have risks similar to
swaps. 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 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 6 for a summary of open swap agreements as of August 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.
12
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
In connection with transactions in repurchase agreements, if the seller
defaults or enters into insolvency proceedings and the value of the
collateral declines, recovery of cash by the Fund may be delayed or
limited.
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. The market value of the securities the Fund has sold is
determined daily and any additional required collateral is allocated to or
sent by the fund on the next business day. For the six months ended
August 31, 2003, the Fund had not entered into any reverse repurchase
agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of collateral, the risk of delay in recovery or
loss of rights in the collateral should the borrower fail financially. The
Fund receives compensation for lending its securities. At August 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 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.
13
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code, of $6,885,002 expiring in 2009. However, restrictions on annual
utilization of this carryforward under the Code resulting from significant
shareholder activity are expected to limit maximum utilization to offset
future capital gains prior to expiration to approximately $3,649,323.
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 the accrual basis, and is adjusted for the amortization of
premium and discounts. Dividend income is recorded on the ex-dividend
date. Non-cash dividends, if any, are recorded at the fair market value of
the securities received. Interest income on inflation indexed securities
is accrued daily based upon an inflation adjusted principal. Additionally,
any increase in the principal or face amount of the securities is recorded
as interest income. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and
U.S. securities markets. The risks described above apply to an even
greater extent to investments in emerging markets. The securities markets
of emerging countries are generally smaller, less developed, less liquid,
and more volatile than the securities markets of the U.S. and developed
foreign markets.
14
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .25% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares. The Fund may invest in Class III shares of GMO Emerging Country
Debt Fund ("ECDF"). Like the management fee (as described below), the
Fund's shareholder service fee will be waived (but not below zero) to the
extent of the indirect shareholder service fees paid in connection with
the Fund's investment in ECDF. The Fund incurs no shareholder service fee
as a result of investments in Alpha LIBOR Fund or SDCF.
GMO has entered into a binding agreement effective until at least
June 30, 2004, to reimburse the Fund to the extent that the Fund's total
direct annual operating expenses plus the amount of indirect fees and
operating expenses incurred through its investment in underlying funds
exceed the management fee. For purposes of this calculation, the Fund's
total direct annual operating expenses excludes shareholder service fees,
fees and expenses of the independent Trustees of the Trust (including
legal fees) ("Trustees fees"), and the following investment-related costs:
brokerage commissions, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses, interest expense and transfer taxes.
Additionally, the indirect fees and operating expenses incurred through
investment in underlying funds excludes investment-related expenses and,
with the exception of the Fund's investment in ECDF, Trustees fees.
The Fund incurs fees and expenses indirectly as a shareholder in Alpha
LIBOR Fund, SDCF and ECDF. For the six months ended August 31, 2003,
indirect operating expenses (excluding shareholder service fees and
investment-related expenses) and indirect investment-related expenses
(including, but not limited to interest expense, foreign audit expense,
and investment-related legal expense) incurred indirectly by the Fund
through its investment in underlying funds (including Alpha LIBOR Fund,
SDCF and ECDF) were .020% (annualized) and .010% (annualized) of the
Fund's average daily net assets, respectively. For the six months ended
August 31, 2003, shareholder service fees incurred indirectly by the Fund
were .005% (annualized) of the Fund's average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during six months ended August 31, 2003 was $105. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager.
As of August 31, 2003, substantially all of the Fund's shares were held by
accounts for which the Manager has investment discretion.
15
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $3,693,775 and $1,659,560, respectively.
At August 31, 2003, the approximate 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
-------------- ---------------- ---------------- --------------
$22,828,860 $ -- $(856,857) $(856,857)
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 97.5% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's shares
outstanding. One of the shareholders is another fund of GMO Trust.
Investment activities of these shareholders may have a material effect on
the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
---------------------- ------------------------
Shares Amount Shares Amount
--------- ----------- ---------- ------------
Class III:
Shares sold 1,116,880 $10,148,257 1,433,219 $ 12,587,730
Shares issued to shareholders in reinvestment
of distributions 129,636 1,123,946 143,796 1,219,389
Shares repurchased (931,931) (8,545,797) (1,275,960) (11,011,182)
--------- ----------- ---------- ------------
Net increase 314,585 $ 2,726,406 301,055 $ 2,795,937
========= =========== ========== ============
</Table>
16
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
---------- ---------------- ----------------- ------------ --------------
Buys
10/16/03 AUD 2,400,000 $1,546,502 $ (2,106)
10/23/03 CAD 600,000 431,489 3,880
9/11/03 CHF 1,300,000 928,414 (26,524)
11/13/03 EUR 3,000,000 3,286,940 29,450
9/02/03 GBP 600,000 949,050 (6,419)
11/06/03 GBP 2,100,000 3,307,099 16,357
10/09/03 NZD 1,800,000 1,034,626 (6,062)
--------
$ 8,576
========
Sales
10/23/03 CAD 1,600,000 $1,150,636 $(11,157)
9/02/03 GBP 600,000 949,050 (4,770)
9/25/03 JPY 120,000,000 1,029,213 (16,423)
--------
$(32,350)
========
</Table>
FORWARD CROSS CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Deliver/Units of Receive/In Appreciation
Date Currency Exchange For (Depreciation)
---------- ---------------- --------------- --------------
9/18/03 CHF 4,754,083 EUR 3,100,000 $ 6,134
10/02/03 EUR 1,000,000 NOK 8,166,650 (9,231)
10/30/03 EUR 1,800,000 SEK 16,600,560 7,254
-------
$ 4,157
=======
</Table>
See Notes for the Schedule of Investments for definitions of currency
abbreviations.
17
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
<Table>
<Caption>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- ------------------------------------- ------------------ ------------ --------------
Buys
5 Australian Government Bond 10 Yr. September 2003 $ 335,945 $ (10,382)
11 Australian Government Bond 3 Yr. September 2003 729,394 (10,417)
7 Canadian Government Bond 10 Yr. December 2003 543,539 3,487
9 Euro BOBL September 2003 1,098,877 (13,802)
9 Euro BOBL December 2003 1,089,885 1,028
15 Euro Bund September 2003 1,882,020 (35,615)
15 Euro Bund December 2003 1,867,034 2,373
2 Japanese Government Bond 10 Yr. September 2003 2,355,159 (98,176)
1 U.S. Long Bond December 2003 106,000 1,643
2 U.S. Treasury Note 10 Yr . December 2003 219,438 997
---------
$(158,864)
=========
Sales
15 U.S. Treasury Note 5 Yr. December 2003 $1,647,890 $ (5,945)
5 UK Gilt Long Bond December 2003 929,753 (982)
---------
$ (6,927)
=========
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
18
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
WRITTEN OPTION TRANSACTIONS
<Table>
<Caption>
Puts Calls
---------------------------- ----------------------------
Principal Amount Principal Amount
of Contracts of Contracts
(000's omitted) Premiums (000's omitted) Premiums
---------------- ---------- ---------------- ----------
Outstanding, beginning of period -- $ -- -- $ --
Options written 1,700,000 16,830 1,700,000 16,830
Options expired -- -- (1,700,000) (16,830)
Options exercised (1,700,000) (16,830) -- --
------------- -------- ------------- --------
Outstanding, end of period -- $ -- -- $ --
============= ======== ============= ========
</Table>
SWAP AGREEMENTS
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------- ---------- -------------------------------------------------- --------------
INTEREST RATE SWAPS
1,300,000 GBP 6/30/05 Agreement with Citibank N.A. dated 6/30/03 to pay $ 47,110
the notional amount multiplied by 3.6675% and to
receive the notional amount multiplied by the 6
month British LIBOR adjusted by a specific spread.
2,200,000 USD 7/02/05 Agreement with Deutsche Bank AG dated 6/30/03 to (29,902)
receive the notional amount multiplied by 1.55%
and to pay the notional amount multiplied by the 3
month LIBOR adjusted by a specific spread.
2,900,000 CAD 7/31/05 Agreement with Deutsche Bank AG dated 7/31/03 to 5,101
pay the notional amount multiplied by 3.145% and
to receive the notional amount multiplied by the 3
month Canadian CDOR adjusted by a specific spread.
</Table>
19
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------- ---------- -------------------------------------------------- --------------
2,000,000 USD 8/04/05 Agreement with Goldman Sachs International dated $ (7,104)
7/31/03 to receive the notional amount multiplied
by 1.975% and to pay the notional amount
multiplied by the 3 month LIBOR adjusted by a
specific spread.
1,900,000 EUR 9/01/05 Agreement with Citibank N.A. dated 8/28/03 to pay (7,702)
the notional amount multiplied by 2.82% and to
receive the notional amount multiplied by the 6
month EURIBOR adjusted by a specific spread.
2,200,000 USD 9/02/05 Agreement with JP Morgan Chase Bank dated 8/28/03 891
to receive the notional amount multiplied by 2.25%
and to pay the notional amount multiplied by the 3
month LIBOR adjusted by a specific spread.
100,000 CHF 04/02/08 Agreement with Citibank N.A. dated 4/02/03 to (649)
receive the notional amount multiplied by 1.885%
and to pay the notional amount multiplied by the 6
month Swiss LIBOR adjusted by a specific spread.
100,000 CHF 04/02/13 Agreement with Citibank N.A. dated 4/02/03 to (1,671)
receive the notional amount multiplied by 2.71%
and to pay the notional amount multiplied by the 6
month Swiss LIBOR adjusted by a specific spread.
</Table>
20
<Page>
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------- ---------- -------------------------------------------------- --------------
TOTAL RETURN SWAPS
3,000,000 USD 7/21/04 Agreement with JP Morgan Chase Bank dated 7/01/03 $ (5,036)
to receive (pay) the notional amount multiplied by
the return on the JP Morgan Non-U.S. Traded Total
Return Government Bond Index, hedged in U.S.
dollars and to pay the notional amount multiplied
by the 1 month LIBOR adjusted by a specified
spread.
3,000,000 USD 7/21/05 Agreement with JP Morgan Chase Bank dated 7/01/03 (5,033)
to receive (pay) the notional amount multiplied by
the return on the JP Morgan Non-U.S. Traded Total
Return Government Bond Index, hedged in U.S.
dollars and to pay the notional amount multiplied
by the 1 month LIBOR adjusted by a specified
spread.
----------
$ (3,995)
==========
</Table>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
21
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
COMMON STOCKS -- 96.8%
ARGENTINA -- 0.2%
19,033 Grupo Financiero Galicia SA ADR* 77,084
13,200 Petrobras Energia Participaciones SA ADR* 99,000
10,500 Telecom Argentina SA ADR* 60,795
------------
236,879
------------
AUSTRALIA -- 2.1%
22,300 Australia and New Zealand Banking Group Ltd 252,878
40,507 Boral Ltd 139,743
146,306 General Property Trust Units 264,203
49,579 National Australia Bank Ltd 997,678
49,944 Santos Ltd 188,785
48,313 Stockland Trust Group Units 152,913
148,269 Westfield Trust Units 316,691
33,533 Woodside Petroleum Ltd 289,752
------------
2,602,643
------------
AUSTRIA -- 2.3%
7,208 Austrian Airlines* 50,568
658 Bau Holdings AG 50,569
2,793 Boehler Uddeholm (Bearer) 147,526
1,166 Brau Union AG 160,147
4,667 Flughafen Wien AG 173,854
1,520 Generali Holding Vienna AG 35,896
15,958 Immofinanz Immobilien Anlagen AG* 110,203
446 Lenzing AG 56,066
2,444 Mayr-Melnhof Karton AG (Bearer) 208,758
1,661 BBAG Oesterreichische Brau-Beteiligungs AG 222,481
7,299 OMV AG 857,532
13,719 Telekom Austria AG* 143,240
5,897 VA Technologie AG (Bearer)* 165,742
684 Verbund-Oesterreichische Elektrizitaetswirtschafts AG 61,436
7,208 Voestalpine AG 280,698
10,046 Wienerberger AG 191,362
------------
2,916,078
------------
BELGIUM -- 2.6%
11,650 Almanij NV 469,541
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
BELGIUM -- CONTINUED
1,350 Bekaert SA 64,785
800 CMB SA 35,045
4,200 Colruyt SA 305,721
10,400 Delhaize Group 403,175
1,975 Electrabel SA 495,252
171 Exmar NV* 5,876
32,414 Fortis, Class B 544,842
13,640 KBC Bankverzekeringsholdings 530,427
2,327 Solvay Et Cie 153,033
11,950 UCB SA 317,633
------------
3,325,330
------------
BRAZIL -- 0.4%
10,953,000 Banco do Brasil SA 56,966
4,817,669 Companhia Siderurgica Nacional SA 161,891
1,296,000 Compania Saneamento Basico SAO PA 56,681
7,200 Petroleo Brasileiro SA (Petrobras) 159,757
3,200 Petroleo Brasileiro SA (Petrobras) ADR 70,720
------------
506,015
------------
CANADA -- 2.0%
12,600 Bank of Nova Scotia 558,991
18,300 EnCana Corp 685,219
4,400 Imperial Oil Ltd 158,250
11,900 National Bank of Canada 300,685
140,000 Nortel Networks Corp* 454,169
7,600 Petro-Canada 299,255
------------
2,456,569
------------
CHINA -- 1.2%
212,000 Angang New Steel Co, Class H 73,391
146,000 Beijing Datang Power Co Ltd 79,090
268,000 Brilliance China Automotive Holdings Ltd 85,046
45,000 China International Marine Containers Co Ltd, Class B* 60,005
94,000 China Mobile Ltd 241,648
632,000 China Petroleum & Chemical Corp, Class H 192,452
88,000 CNOOC Ltd 163,603
68,000 Cosco Pacific Ltd 75,852
86,000 Denway Motors Ltd 48,517
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
CHINA -- CONTINUED
102,000 Huaneng Power International Inc, Class H 139,935
716,000 PetroChina Co Ltd, Class H 250,162
86,000 Yanzhou Coal Mining Co Ltd, Class H 50,447
106,000 Zhejiang Southeast Electric Power Co, Class B 66,992
------------
1,527,140
------------
DENMARK -- 0.0%
1,600 DFDS A/S 44,947
------------
FINLAND -- 1.4%
28,700 Finnair, Class A 149,041
36,800 Fortum Oyj 298,172
12,900 Kemira Oyj 111,320
31,400 Nokia Oyj 514,353
3,900 Orion-Yhtymae Oyj 66,796
22,600 Rautaruukki Oyj* 118,604
43,500 Sampo Oyj 335,266
12,000 UPM-Kymmene Oyj 217,384
------------
1,810,936
------------
FRANCE -- 4.4%
48,313 Alcatel SA* 525,124
24,934 Arcelor 321,657
20,433 BNP Paribas 1,018,027
3,285 Bongrain SA 142,136
7,174 Business Objects SA* 191,395
7,668 Chargeurs SA 210,467
13,009 Cie de Saint-Gobain 508,317
899 Eiffage SA 82,021
2,476 Eramet 72,853
2,228 Esso S.A.F. 211,589
35,507 France Telecom SA* 881,019
1,477 Group Danone 202,538
3,358 Sanofi-Synthelabo SA 188,762
11,761 Societe Generale, Class A 779,909
786 Total Gabon 155,676
------------
5,491,490
------------
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
GERMANY -- 6.8%
61,400 Bankgesellschaft Berlin AG* 148,978
9,150 BASF AG 424,937
9,900 Bayer AG 212,167
24,650 Commerzbank AG 345,056
38,550 DaimlerChrysler AG (Registered) 1,480,495
2,709 Degussa AG 77,924
18,800 Deutsche Post AG 297,223
85,800 Deutsche Telekom* 1,229,308
36,200 E. On AG 1,867,967
10,800 IWKA AG 146,319
8,600 Merck KGaA 250,400
3,400 Metro AG 122,251
5,800 SAP AG 694,411
3,900 Sudzucker AG 61,016
24,700 ThyssenKrupp AG 334,367
15,800 Volkswagen AG 775,403
------------
8,468,222
------------
HONG KONG -- 1.2%
98,400 CLP Holdings Ltd 434,005
165,000 Hang Lung Group Co Ltd 169,245
129,500 Hong Kong Electric Holdings Ltd 511,402
4,000 Hong Kong Land Holdings 5,360
51,000 Hutchison Whampoa Ltd 375,993
------------
1,496,005
------------
HUNGARY -- 0.1%
10,300 OTP Bank Rt* 117,275
------------
INDIA -- 0.3%
13,100 ICICI Bank Ltd ADR 126,939
200 Infosys Technologies ADR 11,330
6,300 Reliance Industries Ltd GDR 144A 115,290
6,800 State Bank of India GDR 170,680
------------
424,239
------------
INDONESIA -- 0.4%
274,000 Bank Central Asia Tbk 94,455
37,000 Bank Mandiri Persero PT* 3,707
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
INDONESIA -- CONTINUED
44,500 Gudang Garam 48,250
61,000 Indonesian Satellite Corp Tbk PT 58,232
743,000 PT Matahari Putra Prima Tbk 41,594
375,000 Telekomunikasi Indonesia Tbk PT, Class B 202,195
------------
448,433
------------
IRELAND -- 0.6%
28,801 Allied Irish Banks Plc 404,428
22,104 Bank of Ireland 262,822
16,000 Greencore Group 50,943
------------
718,193
------------
ISRAEL -- 0.3%
7,900 Check Point Software Technologies* 138,013
16,500 Machteshim Agan Industries 43,998
2,400 Teva Pharmaceutical Industries ADR 140,909
------------
322,920
------------
ITALY -- 4.3%
30,025 Assicurazioni Generali SPA 645,114
157,000 Banca Intesa SPA 471,433
71,978 Enel SPA 438,587
119,184 ENI-Ente Nazionale Idrocarburi SPA 1,800,525
10,790 Fiat SPA (Savings Shares)* 45,490
16,685 Mediobanca SPA 164,683
102,390 Parmalat Finanziaria SPA 331,059
19,743 RAS SPA 283,954
14,326 Sanpaolo IMI SPA 137,625
150,596 Telecom Italia Mobile SPA 664,664
151,070 Telecom Italia SPA* 354,940
------------
5,338,074
------------
JAPAN -- 21.7%
10,940 Acom Co Ltd 453,802
53,000 AIOI Insurance Co Ltd 133,999
14,000 Alps Electric Co Ltd 238,053
6,900 Aoki International 35,718
17,000 Brother Industries Ltd 150,797
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
JAPAN -- CONTINUED
22,000 Canon Inc 1,057,765
17,800 Chubu Electric Power Co Inc 324,177
12,700 Chugoku Electric Power Co Inc 195,920
141,000 Cosmo Oil Co Ltd 247,729
15,000 Dai Nippon Printing Co Ltd 191,164
35,000 Daiichi Pharmaceuticals Co Ltd 535,139
24,000 Daio Paper Corp 192,938
11,300 Daito Trust Construction Co Ltd 304,097
37,000 Daiwa House Industry Co Ltd 288,250
14,000 Denso Corp 261,570
103 East Japan Railway Co 435,199
27,000 Ezaki Glico Co Ltd 161,056
82,000 Fuji Heavy Industries Ltd 404,097
13,000 Fuji Photo Film Co Ltd 389,955
84,000 Furukawa Electric Co Ltd 305,245
141,000 Itochu Corp 422,952
41,000 Itoham Foods Inc 156,368
18,000 Izumiya Co Ltd 79,294
37,000 JACCS Co 127,160
35 Japan Tobacco Inc 204,577
26,425 JFE Holdings Inc 532,214
127,000 Kajima Corp 347,215
43,000 Kamigumi Co Ltd 247,283
41,000 Kandenko Co 139,501
22,900 Kansai Electric Power Co Inc 361,321
61,000 Kansai Paint Co 234,213
16,000 Kao Corp 301,680
54 KDDI Corp 276,294
67,000 Kirin Brewery Co Ltd 479,474
20,493 Konica Minolta Holdings Inc 280,839
46,000 Kyudenko Corp 160,456
19,000 Kyushu Electric Power Co Inc 287,736
27,000 Maeda Road Construction 133,982
138,000 Mazda Motor Corp 363,096
50,000 Misawa Homes Holdings Inc* 57,851
149,000 Mitsubishi Electric Corp 611,682
104,000 Mitsubishi Motors Corp* 226,397
72,000 Mitsubishi Paper Mills Ltd* 114,158
44,000 Mitsui OSK Lines Ltd 152,725
36,000 Mitsui Trust Holding Inc* 119,095
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
JAPAN -- CONTINUED
480 Mizuho Financial Group Inc* 596,503
34,000 Mizuno Corp 118,306
10,000 MOS Food Services 78,934
56,000 Nagase & Co 323,483
45,000 Nippon Express Co Ltd 184,350
34,000 Nippon Flour Mills Co Ltd 106,359
40,000 Nippon Hodo Co 185,122
27,000 Nippon Paint Co 73,123
63,000 Nippon Suisan Kaisha Ltd 144,703
73 Nippon Telegraph & Telephone Corp 321,580
78,000 Nissan Motor Co 837,624
303,000 Nisshin Steel Co Ltd 462,239
28,000 Nisshinbo Industries Inc 125,986
38,000 NOF Corp 157,953
151 NTT Docomo Inc 388,241
33,000 Okumura Corp 113,413
16,000 Olympus Optical Co Ltd 367,501
12,000 Ono Pharmaceutical Co Ltd 402,125
13,600 Pioneer Corp 305,382
15,050 Promise Co 557,216
7,000 Ryosan Co 100,189
61,000 Sankyo Co Ltd 752,828
29,000 Seino Transportation Co Ltd 163,044
21,000 Sekisui House Ltd 184,479
35,000 Sharp Corp 524,940
92,000 Shimizu Corp 294,104
12,000 Suzuki Motor Corp 164,758
29,000 Taisho Pharmaceutical Co Ltd 425,009
23,800 Takeda Chemical Industries Ltd 860,782
9,660 Takefuji Corp 546,418
30,000 TOA Corp 40,624
36,600 Tohoku Electric Power Co Inc 539,527
15,100 Tokyo Electric Power Co Inc 293,769
80,000 Tokyo Gas Co 243,401
50,000 TonenGeneral Sekiyu KK 340,247
20,000 Toppan Printing Co Ltd 161,810
160,000 Toshiba Corp 654,097
39,000 Toyo Ink Manufacturing Co Ltd 122,335
40,200 Toyota Motor Corp 1,109,393
21 Yahoo Japan Corp* 379,757
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
JAPAN -- CONTINUED
17,000 Yamaha Corp 280,031
8,000 Yamanouchi Pharmaceutical Co Ltd 209,805
46,000 Yodogawa Steel Works 167,158
------------
27,132,881
------------
MEXICO -- 0.3%
3,000 America Movil SA de CV ADR 69,000
14,000 Cemex SA de CV CPO 69,537
18,000 Grupo Financiero Banorte SA de CV 47,965
6,300 Telefonos de Mexico, Class L ADR 190,953
------------
377,455
------------
NETHERLANDS -- 3.5%
85,886 ABN Amro Holdings NV 1,503,993
16,773 Aegon NV 207,722
4,187 Boskalis Westminster NV 96,075
4,079 DSM NV 185,627
2,309 Gamma Holdings NV 88,473
68,558 ING Groep NV 1,336,792
2,003 Koninklijke Ten Cate 68,172
7,193 Koninklijke Wessanen NV 62,862
87,974 Royal KPN NV* 609,462
4,088 Vopak NV 52,871
2,208 Wereldhave NV 128,723
------------
4,340,772
------------
NEW ZEALAND -- 0.4%
50,768 Fletcher Building Ltd 123,052
141,578 Telecom Corp of New Zealand 412,609
------------
535,661
------------
NORWAY -- 2.2%
12,740 Aker Kvaerner ASA* 159,332
107,586 DNB Holdings, Class A 503,761
16,371 Norsk Hydro ASA 860,465
12,318 Norske Skogindustrier ASA, Class A 220,195
23,614 Orkla ASA 449,684
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
NORWAY -- CONTINUED
62,300 Statoil ASA 560,988
------------
2,754,425
------------
PHILIPPINES -- 0.2%
874,500 Ayala Land Inc 92,270
51,520 Ginebra San Miguel Inc 27,649
8,940 Philippine Long Distance Telephone* 87,009
33,000 San Miguel Corp, Class B 37,821
------------
244,749
------------
POLAND -- 0.3%
1,700 Bank Pekao SA 54,114
3,500 BRE Bank SA* 99,521
19,000 KGHM Polska Miedz SA* 98,489
13,300 Polski Koncern Naftowy Orlen 82,664
20,800 Telekomunikacja Polska SA 87,145
------------
421,933
------------
RUSSIA -- 0.3%
2,850 Lukoil ADR 221,588
1,690 MMC Norilsk Nickel ADR 66,755
9,600 Yukos Oil 138,720
------------
427,063
------------
SINGAPORE -- 1.7%
179,000 Chartered Semiconductor Manufacturing Ltd* 114,370
15,550 Creative Technology Ltd 160,565
30,000 DBS Group Holdings Ltd 215,643
45,000 Fraser & Neave Ltd 250,300
124,780 Interra Resources Ltd* 19,220
93,000 Keppel Corp Ltd 278,538
566,100 Singapore Telecom Ltd 549,016
45,000 United Overseas Bank Ltd 326,031
18,000 Venture Corp Ltd 207,428
------------
2,121,111
------------
SOUTH AFRICA -- 0.7%
16,771 ABSA Group Ltd 81,109
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
SOUTH AFRICA -- CONTINUED
1,617 Impala Platinum Holdings Ltd 125,740
27,278 Iscor Ltd 77,033
15,000 Remgro Ltd 124,829
77,900 Sanlam Ltd 77,050
12,000 Sasol Ltd 139,154
22,000 Standard Bank Investment Corp 98,745
7,000 Tiger Brands Ltd 68,663
35,000 Woolworths Holdings Ltd 31,276
------------
823,599
------------
SOUTH KOREA -- 1.5%
8,000 Hyundai Department Store Co Ltd* 105,920
1,400 Hyundai Fire & Marine Insurance Co 47,350
2,900 Hyundai Mobis 102,143
4,300 Hyundai Motor Co 143,060
16,500 Hyundai Securities Co* 107,969
600 Kangwon Land Inc 67,371
5,700 Korea Electric Power Corp 93,367
6,900 LG Engineering & Construction Ltd 115,366
11,780 LG International Corp 78,183
1,300 POSCO 153,363
1,740 Samsung Electronics 642,393
800 Samsung SDI Co Ltd 75,027
600 SK Telecom Co Ltd 102,355
------------
1,833,867
------------
SPAIN -- 4.6%
17,754 Altadis SA 419,081
54,234 Banco Santander Central Hispano SA 462,653
9,053 CIA ESP Petroleos 236,058
51,117 Endesa SA 795,801
19,819 Iberdrola SA 336,834
115,695 Repsol YPF SA 1,953,591
8,620 Tableros Defibras, Class B* 31,704
128,848 Telefonica SA 1,516,475
------------
5,752,197
------------
SWEDEN -- 1.4%
10,500 Electrolux AB 234,207
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
SWEDEN -- CONTINUED
19,400 Gambro AB, Class A 131,094
17,150 Hennes & Mauritz AB 361,001
68,300 Nordea AB 347,169
4,100 SSAB Swedish Steel, Class B 53,204
5,500 Svenska Handelsbanken, Class B 83,870
48,500 Swedish Match AB 327,734
55,883 TeliaSonera AB 219,222
------------
1,757,501
------------
SWITZERLAND -- 4.3%
6,497 Bobst Group AG (Registered) 199,472
24,900 Credit Suisse Group 777,819
5,797 Micronas Semiconductor Hold* 161,424
263 Movenpick Holdings (Bearer)* 138,021
32,101 Roche Holding AG (Genusschein) 2,458,200
840 SIG Holding AG 107,958
2,642 Swisscom AG 722,492
562 Valora Holding AG 108,343
692 ZKB Finanz Vision AG* 75,596
5,251 Zurich Financial Services AG* 674,863
------------
5,424,188
------------
TAIWAN -- 1.3%
66,338 Acer Inc 98,076
45,000 Asustek Computer Inc 121,201
63,000 Benq Corp 93,141
64,000 Cathay Financial Holding Co Ltd 79,817
163,089 China Steel Corp 130,345
1,740 Chunghwa Telecom Co Ltd ADR 24,569
61,050 Compal Electronics Inc 92,939
34,650 GigaByte Technology Co Ltd 71,008
18,000 Hon Hai Precision Industry Co Ltd 74,302
114,680 International Bank of Taipei 53,717
131,220 Inventec Co Ltd 79,904
10,800 MediaTek Inc 107,500
50,468 Micro-Star International Co Ltd 89,388
31,900 Quanta Computer Inc 78,914
81,000 Taiwan Semiconductor Manufacturing Co Ltd* 158,879
4,536 Taiwan Semiconductor Manufacturing Co Ltd ADR* 53,434
</Table>
See accompanying notes to the financial statements. 11
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
TAIWAN -- CONTINUED
4,370 United Microelectronics Corp* 3,582
279,000 Walsin Lihwa Corp* 71,469
406,000 Waterland Financial Holdings* 105,191
------------
1,587,376
------------
THAILAND -- 0.3%
80,000 Advanced Info Service Pcl (Foreign Registered) 108,055
75,300 Bangkok Expressway Pcl (Foreign Registered)(a) 42,149
56,600 Electricity Generating Pcl (Foreign Registered) 86,780
73,000 PTT Pcl (Foreign Registered)(a) 129,691
68,000 Thai Union Frozen Products Pcl (Foreign Registered) 51,302
------------
417,977
------------
TURKEY -- 0.2%
10,146,250 Aksa Akrilik Kimya Sanayii 78,897
26,975,999 Aksigorta AS 81,308
38,554,892 Turkiye IS Bankasi* 143,025
------------
303,230
------------
UNITED KINGDOM -- 21.3%
117,721 Abbey National Plc 981,301
17,607 Alliance & Leicester Plc 244,940
35,600 Allied Domecq Plc 214,120
12,800 AstraZeneca Plc 491,988
114,979 Aviva Plc 912,068
19,764 AWG Plc* 164,749
7,965,216 AWG Plc (Redeemable Shares)* 12,284
46,089 BAA Plc 332,430
107,770 BAE Systems Plc 291,069
129,215 Barclays Plc 940,175
33,463 Barratt Developments Plc 274,707
72,590 Boots Group Plc 758,955
23,873 BP Plc 161,995
30,721 British Sky Broadcasting Plc* 321,685
419,426 BT Group Plc 1,220,706
13,100 De Vere Group Plc 83,920
31,520 Electrocomponents Plc 189,456
30,906 Gallaher Group Plc 272,293
52,290 GlaxoSmithKline Plc 998,306
</Table>
12 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
32,550 Great Portland Estates Plc 120,220
57,428 GUS Plc 621,323
23,404 HBOS Plc 260,616
27,690 HSBC Holdings Plc 356,083
183,990 Imperial Chemical Industries Plc 564,591
24,431 Imperial Tobacco Group Plc 381,800
15,679 Inchcape Plc 312,483
45,801 Intercontinental Hotels Group Plc 354,260
36,324 Kelda Group Plc 235,280
26,325 Kesa Electricals Plc* 93,064
115,171 Kingfisher Plc 495,507
33,901 Laird Group 127,354
24,257 Land Securities Group Plc 328,051
194,474 Lloyds TSB Group Plc 1,276,578
45,801 Mitchells & Butlers Plc* 182,563
94,090 National Grid Transco Plc 576,332
24,600 Next Plc 418,683
20,410 Provident Financial Plc 206,292
45,650 RMC Group Plc 400,929
255,429 Rolls-Royce Group Plc 685,832
258,873 Royal & Sun Alliance Insurance Group 567,119
9,730 Royal Bank of Scotland Group 242,245
54,735 Sainsbury (J) Plc 238,736
43,538 Scottish & Newcastle Plc 258,937
40,428 Scottish & Southern Energy Plc 402,866
113,218 Scottish Power Plc 648,727
23,105 Severn Trent Plc 233,897
75,410 Shell Transport & Trading Co Plc (Registered) 472,944
32,526 Tate & Lyle Plc 181,869
127,755 Taylor Woodrow Plc 460,734
25,696 United Utilities Plc 189,607
2,702,441 Vodafone Group Plc 4,947,833
27,702 Whitbread Plc 327,099
36,273 Wilson (Connolly) Holdings 119,627
35,598 Wimpey (George) 219,598
24,171 Wolseley Plc 277,185
------------
26,654,011
------------
TOTAL COMMON STOCKS (COST $115,176,457) 121,161,384
------------
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
PREFERRED STOCKS -- 2.2%
AUSTRALIA -- 0.2%
34,890 News Corporation Ltd 0.93% 249,537
------------
BRAZIL -- 1.0%
257,800 Ambev Ciade Rebid 1.67% 57,028
25,432,000 Banco Bradesco SA 1.23% 108,393
1,998,000 Banco Itau Holding Financeira SA 151,486
31,644,000 Embratel Participacoes SA* 64,977
6,906 Gerdau SA 103,485
198,663 Investimentos Itau SA 2.68% 189,874
16,181 Petroleo Brasileiro SA (Petrobras) 3.01% 332,254
50,668,000 Tele Centro Oeste Celular Participacoes SA 6.78% 103,013
22,300 Usinas Siderrurgicas de Minas Gerais SA 4.57% 128,031
------------
1,238,541
------------
GERMANY -- 0.9%
15,100 Dyckerhoff AG (Non Voting) 11.72%* 206,234
2,000 Krones AG 2.00% 128,454
2,168 RWE AG 4.35% 50,937
24,807 Villeroy & Boch AG (Non Voting) 5.78% 192,011
14,614 Volkswagen AG 5.30% 484,550
------------
1,062,186
------------
ITALY -- 0.0%
13,860 Fiat SPA 4.95%* 56,151
------------
SOUTH KOREA -- 0.1%
2,500 Hyundai Motor Co 5.05% 37,980
500 Samsung Electronics (Non Voting) 4.08% 90,388
------------
128,368
------------
TOTAL PREFERRED STOCKS (COST $2,668,508) 2,734,783
------------
RIGHTS AND WARRANTS -- 0.0%
THAILAND -- 0.0%
15,935 Quality House Co Ltd Warrants, Expires 5/14/08* 1,067
------------
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
UNITED KINGDOM -- 0.0%
14,275 United Utilities Plc Rights, Expires 9/18/03* 24,273
------------
TOTAL RIGHTS AND WARRANTS (COST $30,295) 25,340
------------
SHORT-TERM INVESTMENTS -- 0.1%
CASH EQUIVALENTS -- 0.1%
$ 200,000 Wachovia GC Time Deposit, 1.00%, due 9/02/03 200,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST $200,000) 200,000
------------
TOTAL INVESTMENTS -- 99.1%
(Cost $118,075,260) 124,121,507
Other Assets and Liabilities (net) -- 0.9% 1,066,177
------------
TOTAL NET ASSETS -- 100.0% $125,187,684
============
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
<Table>
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
ADR - American Depositary Receipt
GDR - Global Depository Receipt
NVDR - Non-Voting Depository Receipt
</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).
See accompanying notes to the financial statements. 15
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
AUGUST 31, 2003 (UNAUDITED)
At August 31, 2003, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
- --------------------------------------------------------------------
Financials 22.3%
Telecommunication Services 12.8
Consumer Discretionary 12.4
Energy 9.5
Utilities 8.5
Industrials 8.2
Health Care 6.9
Information Technology 6.7
Materials 6.5
Consumer Staples 6.2
-----
100.0%
=====
</Table>
16 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $118,075,260) (Note 1) $124,121,507
Cash 61,213
Foreign currency, at value (cost $912,298) (Note 1) 775,335
Dividends and interest receivable 307,980
Foreign taxes receivable 76,470
Receivable for expenses reimbursed by Manager (Note 2) 27,187
------------
Total assets 125,369,692
------------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 56,953
Shareholder service fee 15,820
Payable for open forward foreign currency contracts
(Notes 1 and 6) 13,985
Accrued expenses 95,250
------------
Total liabilities 182,008
------------
NET ASSETS $125,187,684
============
NET ASSETS CONSIST OF:
Paid-in capital $131,481,907
Accumulated undistributed net investment income 1,469,419
Accumulated net realized loss (13,655,871)
Net unrealized appreciation 5,892,229
------------
$125,187,684
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $125,187,684
============
SHARES OUTSTANDING:
Class III 11,875,074
============
NET ASSET VALUE PER SHARE:
Class III $ 10.54
============
</Table>
See accompanying notes to the financial statements. 17
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $313,131) $ 2,416,935
Interest 20,566
-----------
Total income 2,437,501
-----------
EXPENSES:
Management fee (Note 2) 304,800
Custodian fees 139,640
Audit fees 21,804
Transfer agent fees 13,892
Legal fees 2,116
Registration fees 1,380
Trustees fees and related expenses (Note 2) 1,268
Miscellaneous 920
Fees reimbursed by Manager (Note 2) (179,292)
-----------
306,528
Shareholder service fee (Note 2) - Class III 84,667
-----------
Net expenses 391,195
-----------
Net investment income 2,046,306
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (435,280)
Closed futures contracts 263,508
Foreign currency, forward contracts and foreign
currency related transactions 854,392
-----------
Net realized gain 682,620
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 19,378,293
Foreign currency, forward contracts and foreign
currency related transactions (630,048)
-----------
Net unrealized gain 18,748,245
-----------
Net realized and unrealized gain 19,430,865
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $21,477,171
===========
</Table>
18 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,046,306 $ 1,740,563
Net realized gain (loss) 682,620 (3,068,842)
Change in net unrealized appreciation (depreciation) 18,748,245 (6,184,656)
------------ -----------
Net increase (decrease) in net assets from
operations 21,477,171 (7,512,935)
------------ -----------
Distributions to shareholders from:
Net investment income
Class III (699,561) (2,648,333)
------------ -----------
Total distributions from net investment income (699,561) (2,648,333)
------------ -----------
Net share transactions (Note 5):
Class III 9,701,332 29,583,367
------------ -----------
Increase in net assets resulting from net share
transactions 9,701,332 29,583,367
------------ -----------
Total increase in net assets 30,478,942 19,422,099
NET ASSETS:
Beginning of period 94,708,742 75,286,643
------------ -----------
End of period (including accumulated undistributed
net investment income of $1,469,419 and $122,674,
respectively) $125,187,684 $94,708,742
============ ===========
</Table>
See accompanying notes to the financial statements. 19
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ----------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999+
---------------- ---------- ---------- ---------- ----------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.73 $ 9.70 $ 10.79 $ 10.43 $ 9.71 $ 10.00
-------- ------- ------- ------- -------- -------
Income from investment operations:
Net investment income 0.18(b) 0.19(b) 0.25(b) 0.23(b) 0.15(b) 0.04
Net realized and unrealized gain
(loss) 1.69 (0.90) (1.03) 0.29 0.70 (0.28)
-------- ------- ------- ------- -------- -------
Total from investment operations 1.87 (0.71) (0.78) 0.52 0.85 (0.24)
-------- ------- ------- ------- -------- -------
Less distributions to shareholders:
From net investment income (0.06) (0.26) (0.31) (0.16) (0.13) (0.05)
-------- ------- ------- ------- -------- -------
Total distributions (0.06) (0.26) (0.31) (0.16) (0.13) (0.05)
-------- ------- ------- ------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 10.54 $ 8.73 $ 9.70 $ 10.79 $ 10.43 $ 9.71
======== ======= ======= ======= ======== =======
TOTAL RETURN(a) 21.45%** (7.47)% (7.16)% 5.03% 8.65% (2.44)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $125,188 $94,709 $75,287 $75,538 $112,623 $18,529
Net expenses to average daily net
assets 0.69%* 0.70% 0.69% 0.69% 0.69% 0.69%*
Net investment income to average
daily net assets 3.63%* 1.98% 2.49% 2.11% 1.36% 0.87%*
Portfolio turnover rate 24%** 48% 50% 56% 5% 20%**
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.32%* 0.45% 0.41% 0.34% 0.34% 2.34%*
</Table>
+ Period from July 29, 1998 (commencement of operations) to February 28,
1999.
* Annualized.
** Not Annualized.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) Computed using average shares outstanding throughout the period.
20 See accompanying notes to the financial statements.
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Tax-Managed International Equities Fund (the "Fund") is a series of
GMO Trust (the "Trust"). The Fund is registered under the Investment
Company Act of 1940, as amended, as an open-end, non-diversified
management investment company. The Fund is advised and managed by
Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust
was established as a Massachusetts business trust under the laws of the
Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust
permits the Trustees to create an unlimited number of series ("Funds"),
each of which issues a separate series of shares, and to subdivide a
series of shares into classes.
The Fund seeks high after-tax total return primarily through investment in
non-U.S. equity securities. The Fund's benchmark is the MSCI EAFE Index
(after-tax). The Fund's benchmark is computed by the Manager by applying
the maximum historical applicable individual federal tax rate to the MSCI
EAFE Index's dividend yield and to its estimated short-term and long-term
realized capital gains (losses) (arising from changes in the constituents
of the MSCI EAFE Index).
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of mutual funds are valued at their net asset value as reported on
each business day. 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.
21
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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 6 and represents the currency
exposure the Fund has acquired or hedged through currency contracts as of
August 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
22
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. At August 31, 2003,
there were no open futures contracts.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
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.
23
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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 the price of the security or index underlying these
transactions. At August 31, 2003, there were no open swap agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund had no securities on loan.
24
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 carryover for
U.S. federal income tax purposes. Therefore, no provision for U.S. federal
income or excise tax is necessary. Taxes on foreign interest and dividend
income 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests.
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.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code, of $323,163, $1,004,023, $6,951,109 and $4,807,000 expiring in 2008,
2009, 2010 and 2011, respectively. The Fund has elected to defer to
March 1, 2003 post-October capital losses of $1,229,777.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the
amortization of premiums and discounts. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. Dividends
representing a return of capital are reflected as a reduction of cost,
when the amount of the return of capital is conclusively determined. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
25
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets. The risks described above apply to an even greater
extent to investments in emerging markets. The securities markets of
emerging countries are generally smaller, less developed, less liquid, and
more volatile than the securities markets of the U.S. and developed
foreign markets.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .54% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003, was $900. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
26
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $38,161,933 and $25,719,749, respectively. At August 31, 2003,
the approximate cost for U.S. federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$118,113,514 $13,953,902 $(7,945,909) $6,007,993
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 42.8% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the outstanding
shares of the Fund. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
----------------------- ----------------------
Shares Amount Shares Amount
Class III: --------- ------------ --------- -----------
Shares sold 1,939,380 $ 19,307,995 3,123,659 $29,900,170
Shares issued to shareholders
in reinvestment of distributions 45,576 470,801 194,117 1,784,356
Shares repurchased (960,513) (10,077,464) (229,938) (2,101,159)
--------- ------------ --------- -----------
Net increase 1,024,443 $ 9,701,332 3,087,838 $29,583,367
========= ============ ========= ===========
</Table>
27
<Page>
GMO TAX-MANAGED INTERNATIONAL EQUITIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
<Table>
<Caption>
FORWARD CROSS CURRENCY CONTRACTS
Settlement Deliver/Units of Receive/In Net Unrealized
Date Currency Exchange For Depreciation
---------- ---------------- --------------- --------------
10/31/03 JPY 448,350,000 EUR 3,500,000 $(13,985)
========
</Table>
CURRENCY ABBREVIATIONS:
<Table>
EUR - Euro
JPY - Japanese Yen
</Table>
28
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
COMMON STOCKS -- 93.3%
AUSTRALIA -- 2.4%
429,910 Amcor Ltd 2,512,681
126,572 APN News & Media Ltd 294,925
1,393,304 Brazin Ltd 1,010,034
480,797 Consolidated Rutile Ltd 183,606
2,986,574 David Jones Ltd 2,686,953
41,587 Foodland Associated 500,391
705,372 John Fairfax Holdings Ltd 1,429,008
201,000 Lihir Gold Ltd 188,641
6,000 Lihir Gold Ltd ADR 144A+ 114,600
168,781 Lion Nathan Ltd 575,713
371,000 Oil Search Ltd 218,518
608,500 Pacifica Group Ltd 1,996,828
825,000 Pasminco Ltd*(a) --
750,000 Promina Group Ltd* 1,451,458
501,000 Sons of Gwalia Ltd 972,817
400,000 WMC Resources Ltd* 1,056,312
------------
15,192,485
------------
AUSTRIA -- 1.5%
9,000 Boehler Uddeholm (Bearer) 475,380
26,850 Erste Bank Der Oesterreichischen Sparkassen AG 2,473,256
15,000 Flughafen Wien AG 558,776
26,248 BBAG Oesterreichische Brau-Beteiligungs AG 3,515,757
15,480 OMV AG 1,818,688
35,000 Wienerberger AG 666,700
------------
9,508,557
------------
BELGIUM -- 1.6%
61,070 Almanij NV 2,461,360
37,918 Bekaert SA 1,819,655
167 CFE (CIE Francois D'enter) 37,953
68,300 KBC Bankverzekeringsholdings 2,656,024
44,320 Omega Pharma SA 1,384,347
17,990 Solvay Et Cie 1,183,098
5,006 Unibra SA 387,474
------------
9,929,911
------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
BRAZIL -- 0.3%
479,600 Cia de Concessoes Rodoviarias 2,105,640
------------
CANADA -- 1.0%
785,000 Hudson's Bay Co 5,030,927
90,600 KAP Resources Ltd*(a) 653
14,000 Rothmans Inc 256,353
153,400 Timberwest Forest Corp 1,306,026
------------
6,593,959
------------
CROATIA -- 0.4%
160,000 Pliva D.D. 2,400,000
------------
DENMARK -- 0.8%
50,000 Carlsberg A/S, Class B 1,996,023
36,000 Kobenhavns Lufthavne AS 3,113,795
------------
5,109,818
------------
FINLAND -- 5.6%
216,900 Aspocomp Group Oyj 1,762,195
728,111 Huhtamaki Oyj, Class I 7,354,416
302,150 Jaakko Poyry Group 5,871,630
372,500 M-real Oyj 3,300,370
1,178,160 Rapala VMC Oyj 5,820,758
292,600 Stockmann Oyj AB, Class B 5,098,167
274,500 Uponor Oyj 6,178,158
------------
35,385,694
------------
FRANCE -- 7.2%
39,100 Assurances Generales de France 1,756,609
23,271 Bacou Dalloz 2,059,268
52,700 Bail Investissement 1,099,327
22,800 BIC SA 938,705
161,900 Boursorama* 870,975
30,216 Buffalo Grill 284,966
391,900 Canal Plus 1,992,136
3,700 Casino Guichard Perrachon SA 294,512
7,320 Christian Dior SA 349,674
38,200 Clarins 2,073,922
6,450 Damartex SA* 84,977
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
FRANCE -- CONTINUED
44,100 Essilor International SA 1,791,443
39,101 Eurazeo 2,013,370
369,100 Eurotunnel SA Units (Bearer)* 307,979
6,300 Gaumont SA* 297,421
90,469 GrandVision SA 2,150,406
4,444 Groupe Partouche* 301,038
9,000 Guyenne et Gascogne SA 909,061
11,400 Imerys SA 1,878,661
17,700 Klepierre 870,008
22,100 Lagardere S.C.A. 1,004,027
55,200 LISI 1,436,317
76,000 Michelin SA, Class B 3,085,626
9,407 Natexis Banques Populaires 908,859
26,954 Pinault-Printemps-Redoute 2,315,636
45,000 Publicis Groupe 1,318,139
1,351 SAGA* 56,364
34,600 Schneider Electric SA 1,868,217
18,500 Seb SA 1,567,005
51,872 Societe Virbac SA 1,890,749
7,250 SOMFY International SA 923,334
41,203 Sophia (EX-SFI) 1,506,385
25,000 Thales SA 716,654
34,000 Valeo SA 1,290,076
30,001 Worms et Cie SA 559,948
99,341 Zodiac SA 2,638,318
------------
45,410,112
------------
GERMANY -- 7.1%
129,565 Aareal Bank AG 2,955,943
32,992 Adidas-Salomon AG 2,760,110
98,200 Bilfinger & Berger 2,679,172
73,600 Commerzbank AG 1,030,269
190,200 Continental AG 4,896,843
280,500 Deutsche Lufthansa AG 3,852,592
133,617 Fraport AG Frankfurt Airport Services Worldwide* 3,535,424
57,700 Fresenius Medical Care AG 2,933,051
102,747 Hannover Rueckversicherungs AG 2,723,135
10,505 HeidelbergCement AG* 373,683
96,520 Heidelberger Druckmaschinen 2,808,187
179,170 IWKA AG 2,427,411
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
GERMANY -- CONTINUED
85,673 K&S AG 1,669,572
119,840 Repower Systems AG 2,486,717
10,000 Rheinmetall AG 237,146
100,622 Sudzucker AG 1,574,239
405,100 ThyssenKrupp AG 5,483,882
------------
44,427,376
------------
GREECE -- 0.3%
175,000 Greek Organization of Football Prognostics SA 2,086,559
------------
HONG KONG -- 2.2%
2,083,000 Hang Lung Group Co Ltd 2,136,588
1,757,000 Hang Lung Properties Ltd 2,027,477
4,709,800 HKR International Ltd* 1,343,613
1,929,000 Hopewell Highway Infrastructure Ltd* 952,214
1,500,000 Hysan Development Co Ltd 1,769,378
918,000 Orient Overseas International Ltd 2,036,247
600,000 SCMP Group Ltd 253,867
1,600,000 Techtronic Industries Co 3,528,499
------------
14,047,883
------------
INDIA -- 0.1%
154,000 Hexaware Technologies Ltd GDR* 370,385
------------
INDONESIA -- 0.6%
1,737,000 International Nickel 2,405,392
15,700,000 PT Bank Pan Indonesia Tbk 518,091
9,084,000 Surya Citra Media Tbk 642,357
------------
3,565,840
------------
IRELAND -- 1.6%
718,000 Grafton Group Plc New Units* 3,697,090
246,000 Greencore Group 783,242
379,440 IFG Group Plc 291,611
230,000 Irish Continental Group Plc 2,277,703
230,000 Irish Life & Permanent Plc 2,732,234
------------
9,781,880
------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
ITALY -- 4.1%
255,000 Arnoldo Mondadori Editore SPA 1,850,565
675,475 Banca Intesa SPA 2,028,287
187,500 Banche Popolari Unite Scrl* 2,859,343
209,800 Benetton Group SPA 2,130,640
174,200 Buzzi Unicem SPA 1,690,687
49,700 Davide Campari-Milano SPA 1,942,536
663,800 ERG SPA 3,337,840
9,585 Ericsson SPA 207,310
357,716 Grouppo Editoriale L'Espresso 1,535,599
30,000 Pagnossin SPA* 54,017
367,000 Parmalat Finanziaria SPA 1,186,627
155,552 RAS SPA 2,237,225
485,000 Snam Rete Gas SPA 1,773,163
1,759,364 Telecom Italia SPA* 2,777,649
------------
25,611,488
------------
JAPAN -- 20.4%
123,200 Arisawa Manufacturing 4,117,929
900,000 Bank of Yokohama 2,807,679
875,000 Brother Industries Ltd 7,761,613
110,500 Cawachi Ltd 7,652,040
875,000 Central Glass Co Ltd 5,541,867
350,000 Daikin Industries Ltd 6,689,236
200,000 Dainippon Screen Manufacturing Co Ltd* 1,249,572
500,000 Daito Trust Construction Co Ltd 13,455,605
120,000 Diamond Lease Co Ltd 2,028,111
80,000 Funai Electric Co Ltd 9,701,748
380,000 Izumi Co Ltd 5,223,860
1,000,000 JACCS Co 3,436,750
430 Japan Retail Fund Investment Corp 2,266,455
400,000 Juki Corp* 1,580,391
165,000 Koei Co Ltd 4,525,197
80,000 Kose Corp 2,523,140
1,250,000 Marubeni Corp 1,885,499
384,000 Mazda Motor Corp 1,010,353
731,000 NHK Spring Co Ltd 2,744,069
350,000 Nippon Electric Glass Co Ltd 3,884,556
700 Orix JREIT Inc 3,047,652
3,000,000 Showa Denko* 5,707,919
900,000 Showa Shell Sekiyu 6,232,431
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
JAPAN -- CONTINUED
250,000 TIS Inc 6,856,359
343,000 Tokai Rubber Industries 4,726,980
570,000 Toyo Suisan Kaisha 6,106,445
500,000 Yamaha Motor Co 5,142,269
------------
127,905,725
------------
MEXICO -- 0.3%
1,346,700 Grupo Imsa SA 1,830,916
------------
NETHERLANDS -- 1.1%
35,300 Fortis NV 593,740
3,939 Fugro NV 205,420
117,365 Hagemeyer NV 426,510
49,800 Imtech NV 1,011,495
99,144 Kas Bank NV 1,729,630
54,741 Koninklijke Vendex KBB NV 619,633
27,200 Laurus NV* 40,016
37,626 Nutreco Holding NV 729,114
5,862 Roto Smeets de Boer NV 145,129
46,914 VNU NV 1,457,645
25,263 Wegener NV* 185,833
------------
7,144,165
------------
NEW ZEALAND -- 0.5%
230,000 Air New Zealand, Class B* 67,694
1,207,475 Evergreen Forests Ltd* 320,544
179,232 Fletcher Challenge Forests Ltd* 114,813
1,927,200 Tourism Holdings Ltd 1,579,306
2,358,857 Tranz Rail Holdings Ltd* 1,347,683
------------
3,430,040
------------
NORWAY -- 3.0%
405,390 Ekornes ASA 6,111,013
120,000 Golar LNG Ltd* 1,424,731
118,900 Norske Skogindustrier ASA, Class A 2,125,438
358,350 Prosafe ASA 6,023,372
409,000 Smedvig ASA, Class A 2,809,909
100,000 Smedvig ASA, Class B 566,958
------------
19,061,421
------------
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
SINGAPORE -- 1.2%
2,159,000 Allgreen Properties Ltd 1,243,990
2,000,000 MobileOne Ltd 1,574,534
1,194,800 Singapore Land Ltd 2,644,660
1,231,000 Singapore Post Ltd 540,744
1,400,000 United Overseas Land 1,517,485
------------
7,521,413
------------
SOUTH AFRICA -- 1.2%
9,202,800 Allan Gray Property Trust 3,465,174
10,317,337 Martprop Property Fund 2,955,854
138,989 Western Areas Ltd* 910,160
------------
7,331,188
------------
SOUTH KOREA -- 2.8%
101,800 Asia Cement Co Ltd 3,015,336
563,380 Dongkuk Steel Mill 2,548,538
45,240 FnC Kolon Corp 418,516
496,920 Handsome Corp 4,533,749
29,610 Hanil Cement Manufacturing 1,429,925
113,270 Korea Electric Terminal Co 2,066,883
320,963 Kortek Corp 1,865,985
52,600 Sam Yang 839,279
240,000 Woongjin.com Co Ltd 774,029
------------
17,492,240
------------
SPAIN -- 2.9%
64,000 ACS Actividades Cons y Serv 2,682,038
238,992 Aguas de Barcelona SA 3,056,836
84,400 Altadis SA 1,992,249
270,000 Amadeus Global Travel Distribution 1,808,241
10,649 Bankinter SA 357,761
43,296 Cia de Distribucion Integral Logista SA 1,029,126
137,000 Cortefiel SA 1,022,804
70,000 Fomento de Construcciones y Contratas SA 2,075,031
106,800 Gas Natural SDG SA 1,978,104
70,000 Red Electrica de Espana 864,596
90,000 Union Fenosa SA 1,409,045
------------
18,275,831
------------
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
SWEDEN -- 2.4%
197,900 Autoliv Inc SDR 5,929,047
712,400 Billerud AB 8,946,324
------------
14,875,371
------------
SWITZERLAND -- 3.6%
1,752 Bank Sarasin & Cie AG 2,251,687
2,500 Belimo Holding AG 812,181
16,470 Bobst Group AG (Registered) 505,666
118,286 Charles Voegele Holding AG* 4,421,315
700 Eichhof Holding AG* 339,367
3,120 Forbo Holdings AG (Registered)* 835,386
6,110 Geberit AG 2,094,035
17,510 Helvetia Patria Holding 2,187,890
1,000 Jelmoli Holding AG (Bearer) 692,585
3,250 Jelmoli Holding AG (Registered) 454,821
38,970 Lonza Group AG 1,911,563
1,000 Schaffner Holding AG (Registered)* 119,953
4,293 Sika AG 1,449,851
65,000 Swisslog Holding AG* 255,257
39,030 Unique Zurich Airport* 1,375,267
17,908 Valiant Holding (Registered) 1,099,631
10,650 Valora Holding AG 2,053,122
------------
22,859,577
------------
THAILAND -- 0.2%
600,000 Banpu Pcl (Foreign Registered)(a) 810,416
400,000 Siam Panich Leasing Ltd (Foreign Registered)(a) 386,955
------------
1,197,371
------------
UNITED KINGDOM -- 16.9%
2,484,540 Aggregate Industries Plc 3,576,228
175,000 Alliance & Leicester Plc 2,434,511
268,033 Alliance Unichem Plc 2,162,202
303,207 Amersham Plc 2,445,948
643,173 Anglo Irish Bank Corp 6,348,195
674,400 Balfour Beatty Plc 2,301,475
549,800 Bodycote International Plc 1,330,559
348,600 BPB Plc 1,768,609
1,300,000 Brit Insurance Holdings Plc* 1,578,191
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
500,000 Brown (N) Group Plc 1,103,271
839,100 Carphone Warehouse Group Plc 1,605,968
513,842 Cattle's Plc 2,877,204
130,000 Computacenter Plc 841,016
463,424 Crest Nicholson 2,342,002
2,400,000 Dimension Data Holdings Plc* 1,062,936
696,493 FKI Plc 1,255,913
2,207,600 Fyffes Plc 3,509,331
250,000 Galen Holdings Plc 2,481,370
965,000 Hays Plc 1,755,347
127,400 Imperial Tobacco Group Plc 1,990,968
311,700 Jarvis Plc 1,700,959
850,000 John Wood Group Plc 2,473,857
245,000 Kelda Group Plc 1,586,930
1,540,000 Kidde Plc 2,362,818
362,344 Kier Group Plc 3,295,541
205,000 Kingston Communications Plc* 217,253
60,376 Lonmin Plc 888,625
512,200 Matalan Plc 1,701,362
209,800 Mothercare Plc* 642,132
175,000 Next Plc 2,978,435
270,300 Northern Rock Plc 2,922,284
866,436 Novar Plc 1,774,778
400,000 Peninsular & Oriental Steam Navigation Co 1,627,621
124,031 Pennon Group Plc 1,139,841
2,050,000 PHS Group Plc 2,594,070
220,000 Premier Farnell Plc 946,519
135,000 Provident Financial Plc 1,364,497
405,000 Rank Group Plc 1,817,727
423,700 Rexam Plc 2,746,093
750,000 RM Plc 1,488,822
629,300 Smith (David S.) Holdings Plc 1,592,632
230,000 Smith (WH) Group Plc 1,284,223
689,300 Somerfield Plc 1,401,036
288,600 Tate & Lyle Plc 1,613,703
550,300 Tomkins Plc 2,287,073
110,000 Travis Perkins Plc 2,183,606
295,000 Trinity Mirror Plc 2,445,069
780,000 TT Electronics Plc 1,690,258
230,700 Ultra Electronics Holdings 1,882,934
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
315,000 Viridian Group Plc 2,610,837
488,100 Westbury Plc 3,319,824
165,100 William Hill Plc 810,861
167,800 Wolseley Plc 1,924,278
------------
106,087,742
------------
TOTAL COMMON STOCKS (COST $496,820,708) 586,540,587
------------
PREFERRED STOCKS -- 1.5%
AUSTRALIA -- 0.1%
1,150,000 Village Roadshow Ltd 19.08% 818,771
------------
BRAZIL -- 0.2%
890,000 Caemi Mineracao e Metalurgica SA* 211,905
700,000 Klabin SA* 742,317
------------
954,222
------------
FRANCE -- 0.1%
6,800 Casino Guichard Perrachon SA 3.74% 443,090
------------
GERMANY -- 1.0%
15,686 Koegel Fahrzeugwerke AG* 48,221
57,826 Rheinmetall AG (Non Voting) 3.92% 1,300,852
10,000 Villeroy & Boch AG (Non Voting) 5.78% 77,402
150,000 Volkswagen AG 5.30% 4,973,487
------------
6,399,962
------------
ITALY -- 0.0%
10,000 IFI Istituto Finanziario Industries 4.82%* 68,728
------------
NEW ZEALAND -- 0.1%
915,787 Fletcher Challenge Forests Ltd* 586,636
------------
TOTAL PREFERRED STOCKS (COST $8,349,737) 9,271,409
------------
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
RIGHTS AND WARRANTS -- 0.0%
SINGAPORE -- 0.0%
60,000 United Overseas Land Warrants, Expires 6/12/04* 23,960
------------
TOTAL RIGHTS AND WARRANTS (COST $18,234) 23,960
------------
SHORT-TERM INVESTMENTS -- 2.1%
CASH EQUIVALENTS -- 2.1%
$ 13,000,000 Banc One Corp, 1.00%, due 9/02/03 13,000,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST $13,000,000) 13,000,000
------------
TOTAL INVESTMENTS -- 96.9%
(Cost $518,188,679) 608,835,956
Other Assets and Liabilities (net) -- 3.1% 19,486,440
------------
TOTAL NET ASSETS -- 100.0% $628,322,396
============
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
<Table>
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
ADR - American Depositary Receipt
GDR - Global Depository Receipt
REIT - Real Estate Investment Trust
SDR - Swedish Depository Receipt
</Table>
* Non-income producing security.
+ Direct placement securities are restricted as to resale. They have been
valued at fair value by the Trustees after consideration of restrictions
as to resale, financial condition and prospects of the issuer, general
market conditions, and pertinent information in accordance with the
Fund's Prospectus and the Investment Company Act of 1940, as amended.
The Fund has limited rights to registration under the Securities Act of
1933 with respect to those restricted securities.
(a) Security valued at fair value using methods determined in good faith by
or at the direction of the Trustees (Note 1).
See accompanying notes to the financial statements. 11
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
Additional information on each restricted security is as follows:
<Table>
<Caption>
MARKET
VALUE AS A MARKET
PERCENTAGE VALUE AS OF
ACQUISITION ACQUISITION OF FUND'S AUGUST 31,
ISSUER, DESCRIPTION DATE COST NET ASSETS 2003
- ------------------------------------------------------------------------------------------------
Lihir Gold Ltd ADR 144A 7/03/00 $ 47,302 0.02% $ 114,600
</Table>
12 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
AUGUST 31, 2003 (UNAUDITED)
At August 31, 2003, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
- --------------------------------------------------------------------
Consumer Discretionary 24.3%
Industrials 20.8
Financials 16.1
Materials 13.8
Consumer Staples 7.6
Information Technology 7.0
Energy 4.3
Health Care 2.9
Utilities 2.4
Telecommunication Services 0.8
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements. 13
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $518,188,679) (Note 1) $608,835,956
Cash 44,150
Foreign currency, at value (cost $18,562,063) (Note 1) 18,404,052
Receivable for investments sold 4,712,453
Dividends and interest receivable 834,332
Foreign taxes receivable 292,031
Receivable for expenses reimbursed by Manager (Note 2) 53,444
------------
Total assets 633,176,418
------------
LIABILITIES:
Payable for investments purchased 4,334,687
Payable to affiliate for (Note 2):
Management fee 365,427
Shareholder service fee 67,608
Accrued expenses 86,300
------------
Total liabilities 4,854,022
------------
NET ASSETS $628,322,396
============
NET ASSETS CONSIST OF:
Paid-in capital $538,730,500
Accumulated undistributed net investment income 8,183,287
Accumulated net realized loss (9,084,690)
Net unrealized appreciation 90,493,299
------------
$628,322,396
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $370,795,989
============
Class IV shares $257,526,407
============
SHARES OUTSTANDING:
Class III 32,009,551
============
Class IV 22,223,011
============
NET ASSET VALUE PER SHARE:
Class III $ 11.58
============
Class IV $ 11.59
============
</Table>
14 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $1,510,911) $ 11,347,727
Interest 225,222
------------
Total income 11,572,949
------------
EXPENSES:
Management fee (Note 2) 1,963,258
Custodian fees 220,784
Audit fees 21,344
Transfer agent fees 21,344
Legal fees 10,396
Trustees fees and related expenses (Note 2) 7,478
Registration fees 1,196
Miscellaneous 6,196
Fees reimbursed by Manager (Note 2) (281,260)
------------
1,970,736
Shareholder service fee (Note 2) - Class III 247,038
Shareholder service fee (Note 2) - Class IV 115,775
------------
Net expenses 2,333,549
------------
Net investment income 9,239,400
------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 330,554
Foreign currency, forward contracts and foreign
currency related transactions 312,865
------------
Net realized gain 643,419
------------
Change in net unrealized appreciation (depreciation) on:
Investments 124,889,873
Foreign currency, forward contracts and foreign
currency related transactions (147,196)
------------
Net unrealized gain 124,742,677
------------
Net realized and unrealized gain 125,386,096
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $134,625,496
============
</Table>
See accompanying notes to the financial statements. 15
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 9,239,400 $ 5,140,758
Net realized gain (loss) 643,419 (6,169,379)
Change in net unrealized appreciation (depreciation) 124,742,677 (39,077,009)
------------ ------------
Net increase (decrease) in net assets from
operations 134,625,496 (40,105,630)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (1,467,151) (2,916,437)
Class IV (1,019,013) (2,632,475)
------------ ------------
Total distributions from net investment income (2,486,164) (5,548,912)
------------ ------------
(2,486,164) (5,548,912)
------------ ------------
Net share transactions (Note 5):
Class III 17,343,792 143,772,651
Class IV 781,861 230,373,020
------------ ------------
Increase in net assets resulting from net share
transactions 18,125,653 374,145,671
------------ ------------
Total increase in net assets 150,264,985 328,491,129
NET ASSETS:
Beginning of period 478,057,411 149,566,282
------------ ------------
End of period (including accumulated undistributed
net investment income of $8,183,287 and $1,430,051,
respectively) $628,322,396 $478,057,411
============ ============
</Table>
16 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2003 -----------------------------------
(UNAUDITED) 2003 2002 2001+
---------------- ----------- ----------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.13 $ 9.59 $ 9.68 $ 10.00
-------- -------- -------- -------
Income from investment operations:
Net investment income 0.17(e) 0.16(e) 0.15 0.06
Net realized and unrealized gain (loss) 2.33 (0.51)(b) 0.00(b)(c) (0.33)(b)
-------- -------- -------- -------
Total from investment operations 2.50 (0.35) 0.15 (0.27)
-------- -------- -------- -------
Less distributions to shareholders:
From net investment income (0.05) (0.11) (0.24) (0.05)
-------- -------- -------- -------
Total distributions (0.05) (0.11) (0.24) (0.05)
-------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 11.58 $ 9.13 $ 9.59 $ 9.68
======== ======== ======== =======
TOTAL RETURN(a) 27.36%** (3.64)% 1.59% (2.64)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $370,796 $275,739 $149,566 $61,244
Net expenses to average daily net assets 0.85%* 0.85% 0.86%(d) 0.85%*
Net investment income to average daily net
assets 3.26%* 1.59% 1.48% 1.08%*
Portfolio turnover rate 17%** 24% 17% 16%**
Fees and expenses reimbursed by the
Manager to average daily net assets: 0.10%* 0.15% 0.26% 0.43%*
</Table>
+ Period from June 30, 2000 (commencement of operations) to February 28,
2001.
* Annualized.
** Not Annualized.
(a) Total return would have been lower had certain expenses not been
reimbursed during the period shown.
(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) Net realized and unrealized loss was less than $0.01 per share.
(d) Includes transfer taxes not reimbursed by the Manager, which approximate
.01% of average daily net assets.
(e) Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 17
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
JUNE 14, 2002
SIX MONTHS ENDED (COMMENCEMENT
AUGUST 31, 2003 OF OPERATIONS) THROUGH
(UNAUDITED) FEBRUARY 28, 2003
---------------- ----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.13 $ 10.60
-------- --------
Income from investment operations:
Net investment income 0.17 0.08(b)
Net realized and unrealized gain (loss) 2.34 (1.43)
-------- --------
Total from investment operations 2.51 (1.35)
-------- --------
Less distributions to shareholders:
From net investment income (0.05) (0.12)
-------- --------
Total distributions (0.05) (0.12)
-------- --------
NET ASSET VALUE, END OF PERIOD $ 11.59 $ 9.13
======== ========
TOTAL RETURN(a) 27.47%** (12.76)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $257,526 $202,319
Net expenses to average daily net assets 0.80%* 0.80%*
Net investment income to average daily net assets 3.34%* 1.13%*
Portfolio turnover rate 17%** 24%**
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.10%* 0.14%*
</Table>
* Annualized.
** Not Annualized.
(a) Total return would have been lower had certain expenses not been
reimbursed during the period shown.
(b) Computed using average shares outstanding throughout the period.
18 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Foreign Small Companies Fund (the "Fund") is a series of GMO Trust
(the "Trust"). The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as
a Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund seeks high total return through investment in a diversified
portfolio of equity securities of non-U.S. issuers. The Fund's benchmark
is the Citigroup (f/k/a Salomon Smith Barney) Extended Market Index
("EMI") World ex-U.S. Index.
Throughout the six months ended August 31, 2003, the Fund had two classes
of shares outstanding: Class III and Class IV. The principal economic
difference between the classes of shares is the level of shareholder
service fees borne by the classes. Eligibility for and automatic
conversion between the various classes of shares is generally based on the
total amount of assets invested in a particular fund or with GMO, as more
fully outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of investment trusts and other funds of the Trust ("underlying
funds") are valued at their net asset value as reported on each business
day. 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
19
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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. There were no forward foreign currency contracts
outstanding as of August 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.
20
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. As of August 31,
2003, there were no outstanding futures contracts.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
21
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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 the price of the security or index underlying these
transactions. At August 31, 2003, there were no open swap agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the
22
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
investment of the collateral, the risk of delay in recovery or loss of
rights in the collateral should the borrower of the securities fail
financially. The Fund receives compensation for lending its securities. At
August 31, 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 carryover for
U.S. federal income tax purposes. Therefore, no provision for U.S. federal
income or excise tax is necessary. Taxes on foreign interest and dividend
income 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests.
Income dividends and capital gain distrbutions 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.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code of $506,847, $777,168 and $2,715,721 expiring in 2009, 2010 and 2011,
respectively. The Fund has elected to defer to March 1, 2003 post-October
capital losses of $5,516,486.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the
amortization of premiums and discounts. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. Dividends
representing a return of capital are reflected as a
23
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
reduction of cost, when the amount of the return of capital is
conclusively determined. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. Investment
income, common expenses and realized and unrealized gains and losses are
allocated pro-rata among the classes of shares of the Fund based on the
relative net assets of each class. Shareholder service fees, which are
directly attributable to a class of shares, are charged to that class'
operations.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .70% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .15%
for Class III shares and .10% for Class IV shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $6,006. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
24
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003
aggregated $126,845,692 and $89,595,072, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$518,447,634 $108,460,828 $(18,072,506) $90,388,322
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 44.9% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the outstanding
shares of the Fund. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
---------------------- ------------------------
Shares Amount Shares Amount
Class III: --------- ----------- ---------- ------------
Shares sold 1,699,099 $16,069,884 17,915,318 $176,979,293
Shares issued to shareholders in reinvestment
of distributions 114,974 1,273,908 260,420 2,437,533
Shares repurchased -- -- (3,571,567) (35,644,175)
--------- ----------- ---------- ------------
Net increase 1,814,073 $17,343,792 14,604,171 $143,772,651
========= =========== ========== ============
</Table>
25
<Page>
GMO FOREIGN SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Period from June 14, 2002
Six Months Ended (commencement of
August 31, 2003 operations)
(Unaudited) through February 28, 2003
---------------------- --------------------------
Shares Amount Shares Amount
Class IV: --------- ----------- ----------- -------------
Shares sold -- $ -- 21,937,294 $228,359,202
Shares issued to shareholders in reinvestment
of distributions 70,565 781,861 215,142 2,013,818
Shares repurchased -- -- -- --
--------- ----------- ---------- ------------
Net increase 70,565 $ 781,861 22,152,436 $230,373,020
========= =========== ========== ============
</Table>
26
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
COMMON STOCKS -- 87.0%
AUSTRALIA -- 4.7%
58,623 Australia and New Zealand Banking Group Ltd 664,774
170,718 Australian Gas Light Co Ltd 1,188,950
348,322 AXA Asia Pacific Holdings Ltd 583,919
171,830 Foster's Group Ltd 504,925
53,002 Macquarie Bank Ltd 1,086,114
63,198 National Australia Bank Ltd 1,271,733
134,342 QBE Insurance Group Ltd 853,008
223,869 Santos Ltd 846,211
290,093 Stockland Trust Group Units 918,160
107,604 Westfield Holdings Ltd 1,037,736
105,254 Westpac Banking Corp 1,066,166
109,012 Woodside Petroleum Ltd 941,950
36,094 Woolworths Ltd 274,735
------------
11,238,381
------------
AUSTRIA -- 1.2%
2,329 Bau Holdings AG 178,991
1,095 Brau Union AG 150,395
6,052 Erste Bank Der Oesterreichischen Sparkassen AG 557,473
5,255 Mayr-Melnhof Karton AG (Bearer) 448,864
2,832 Oesterreichische Brau Beteiligungs AG 379,329
7,172 OMV AG 842,612
14,736 Wienerberger AG 280,700
------------
2,838,364
------------
BELGIUM -- 1.1%
16,760 Almanij NV 675,493
20,193 Dexia 251,628
2,433 Electrabel SA 610,100
26,790 Fortis, Class B 450,309
9,293 KBC Bankverzekeringsholdings 361,383
12,964 UCB SA 344,585
------------
2,693,498
------------
CANADA -- 6.5%
18,600 Bank of Montreal 623,509
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
CANADA -- CONTINUED
33,300 Bank of Nova Scotia 1,477,333
43,200 Biovail Corp* 1,775,773
135,700 Bombardier Inc 519,459
20,300 Canadian Imperial Bank of Commerce 830,498
58,600 Canadian Natural Resources 2,269,818
25,200 EnCana Corp 943,581
20,300 Imperial Oil Ltd 730,106
17,600 Investors Group Inc 356,530
9,900 Loblaw Cos Ltd 441,419
10,900 Molson Inc 263,238
31,700 Nexen Inc 834,806
30,100 Petro-Canada 1,185,209
8,500 Precision Drilling Corp* 339,473
13,300 Royal Bank of Canada 571,349
13,400 Shell Canada Ltd 505,223
13,900 Suncor Energy Inc 260,534
9,900 Talisman Energy Inc 468,897
40,700 Toronto-Dominion Bank 1,145,756
------------
15,542,511
------------
DENMARK -- 0.7%
60 D/S Svendborg B 393,882
28,500 Danske Bank A/S 522,514
23,100 Novo-Nordisk A/S 819,700
------------
1,736,096
------------
FINLAND -- 3.1%
417,050 Nokia Oyj 6,831,558
59,400 Sampo Oyj 457,811
------------
7,289,369
------------
FRANCE -- 2.7%
14,433 BNP Paribas 719,091
22,705 Carrefour SA 1,131,723
4,875 L'Oreal SA 338,798
146,825 Orange SA* 1,362,133
4,690 Peugeot SA 214,050
12,442 Renault SA 749,938
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
FRANCE -- CONTINUED
24,503 STMicroelectronics NV 609,327
9,244 Total SA 1,417,814
------------
6,542,874
------------
GERMANY -- 4.5%
7,971 Altana AG 409,564
14,423 BASF AG 669,821
65,776 Deutsche Post AG 1,039,903
59,740 E. On AG 3,082,662
7,691 Merck KGaA 223,933
19,889 RWE AG 536,077
33,952 SAP AG 4,064,937
60,247 T-Online International* 644,916
------------
10,671,813
------------
GREECE -- 0.3%
26,735 National Bank of Greece SA 584,699
------------
HONG KONG -- 1.8%
244,400 Bank of East Asia 576,581
142,500 CLP Holdings Ltd 628,514
107,000 Esprit Holdings Ltd 268,208
309,500 Hong Kong Electric Holdings Ltd 1,222,230
86,000 Hutchison Whampoa Ltd 634,027
295,000 Yue Yuen Industrial Holdings 877,509
------------
4,207,069
------------
IRELAND -- 0.9%
88,613 Allied Irish Banks Plc 1,244,316
41,627 Bank of Ireland 494,956
42,766 Ryanair Holdings Plc* 294,864
------------
2,034,136
------------
ITALY -- 4.2%
80,028 Assicurazioni Generali SPA 1,719,474
417,576 Banca Intesa SPA 1,253,879
138,540 Banca Intesa SPA (Savings Shares) 309,530
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
ITALY -- CONTINUED
181,962 Enel SPA 1,108,757
80,048 ENI-Ente Nazionale Idrocarburi SPA 1,209,293
70,252 Snam Rete Gas SPA 256,842
767,673 Telecom Italia Mobile SPA 3,388,169
187,565 Telecom Italia SPA* 440,685
63,759 UniCredito Italiano SPA 296,104
------------
9,982,733
------------
JAPAN -- 18.7%
29,000 Ajinomoto Co Inc 285,576
25,000 Alps Electric Co Ltd 425,094
26,000 Bridgestone Corp 362,101
76,000 Canon Inc 3,654,097
139 Central Japan Railway Co 980,434
62,500 Chubu Electric Power Co Inc 1,138,263
24,000 Chugai Pharmaceutical Co Ltd 254,234
41,000 Daiichi Pharmaceuticals Co Ltd 626,877
24,800 Daito Trust Construction Co Ltd 667,398
23,000 Denso Corp 429,722
146 East Japan Railway Co 616,884
23,000 FamilyMart 459,290
4,900 Fanuc Ltd 323,363
23,400 Fast Retailing Co Ltd 972,660
91,000 Fuji Heavy Industries Ltd 448,449
18,000 Fuji Photo Film Co Ltd 539,938
126,000 Furukawa Electric Co Ltd 457,868
2,500 Hirose Electric Co Ltd 267,612
11,500 Honda Motor Co Ltd 468,161
75,200 Kansai Electric Power Co Inc 1,186,520
18,000 Kao Corp 339,390
193 KDDI Corp 987,496
3,000 Keyence Corp 626,586
50,800 Konami Corp 1,125,454
128,000 Mitsubishi Electric Corp 525,471
127,000 Mitsui Mining & Smelting Co Ltd 426,671
315,000 Mitsui OSK Lines Ltd 1,093,375
372 Nippon Telegraph & Telephone Corp 1,638,738
83,000 Nippon Yusen Kabushiki Kaisha 342,869
38,300 Nissin Food Products 809,132
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
JAPAN -- CONTINUED
554 NTT Docomo Inc 1,424,409
50,000 Olympus Optical Co Ltd 1,148,440
25,000 Ono Pharmaceutical Co Ltd 837,761
560,000 Osaka Gas Co Ltd 1,406,239
31,300 Pioneer Corp 702,828
8,500 Promise Co 314,707
50,000 Sankyo Co Ltd 617,072
35,000 Sharp Corp 524,940
22,000 Shionogi and Co Ltd 323,552
27,000 Stanley Electric Co Ltd 476,688
37,000 Taisho Pharmaceutical Co Ltd 542,252
87,900 Takeda Chemical Industries Ltd 3,179,105
7,980 Takefuji Corp 451,388
75,200 Terumo Corp 1,453,342
72,100 Tohoku Electric Power Co Inc 1,062,839
84,400 Tokyo Electric Power Co Inc 1,641,995
223,000 Tokyo Gas Co 678,480
85,000 Tokyu Corp 296,495
11,600 Toyoda Gosei Co Ltd 258,982
85,000 Toyota Motor Corp 2,345,732
17,000 Uni-Charm Corp 786,767
28 Yahoo Japan Corp* 506,342
50,000 Yamaha Motor Co 514,227
29,000 Yamanouchi Pharmaceutical Co Ltd 760,542
------------
44,734,847
------------
NETHERLANDS -- 2.5%
209,085 ING Groep NV 4,076,887
61,978 Koninklijke Ahold NV* 585,193
30,897 Numico NV 599,398
15,966 Royal Dutch Petroleum 712,557
------------
5,974,035
------------
NEW ZEALAND -- 0.6%
477,085 Telecom Corp of New Zealand 1,390,395
------------
NORWAY -- 0.1%
9,550 Gjensidige NOR ASA 321,045
------------
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
SINGAPORE -- 1.0%
35,950 Creative Technology Ltd 371,211
1,536,000 Singapore Telecom Ltd 1,489,646
51,000 Venture Corp Ltd 587,712
------------
2,448,569
------------
SPAIN -- 6.5%
12,756 ACS Actividades Cons y Serv 534,564
57,194 Altadis SA 1,350,056
32,522 CIA ESP Petroleos 848,015
159,220 Endesa SA 2,478,772
51,695 Gas Natural SDG SA 957,473
14,317 Inditex SA 356,027
19,228 Metrovacesa SA 478,573
322,119 Repsol YPF SA 5,439,205
69,736 Sacyr Vallehermoso SA 765,632
45,103 Telefonica Moviles SA 352,572
68,460 Telefonica SA 805,739
46,148 Union Fenosa SA 722,496
19,853 Zardoya-Otis SA 321,936
------------
15,411,060
------------
SWEDEN -- 2.3%
100,800 Hennes & Mauritz AB 2,121,801
58,400 Skanska AB, Class B 380,663
40,700 Svenska Handelsbanken, Class A 644,973
128,000 Swedish Match AB 864,948
40,700 Tele2 AB Class B* 1,530,899
------------
5,543,284
------------
SWITZERLAND -- 3.0%
831 Givaudan 344,136
6,788 Roche Holding AG (Bearer) 796,065
49,104 Roche Holding AG (Genusschein) 3,760,240
6,875 Swisscom AG 1,880,065
8,466 UBS AG 456,682
------------
7,237,188
------------
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
UNITED KINGDOM -- 20.6%
165,159 Abbey National Plc 1,376,736
27,039 Alliance & Leicester Plc 376,153
345,428 Barclays Plc 2,513,351
42,165 Barratt Developments Plc 346,144
163,255 BG Group Plc 704,318
417,671 BP Plc 2,834,193
78,596 Cadbury Schweppes Plc 474,899
394,430 Centrica Plc 1,108,964
35,637 Cobham Group Plc 645,423
69,950 Compass Group Plc 387,529
311,125 Dixons Group Plc (New Shares) 677,898
64,909 Gallaher Group Plc 571,871
143,361 GlaxoSmithKline Plc 2,737,008
50,654 GUS Plc 548,034
39,873 HBOS Plc 444,007
144,018 Imperial Tobacco Group Plc 2,250,669
55,412 Kesa Electricals Plc* 195,893
242,430 Kingfisher Plc 1,043,021
181,855 Lloyds TSB Group Plc 1,193,744
197,201 Morrison Supermarkets 651,918
598,908 National Grid Transco Plc 3,668,507
84,673 Next Plc 1,441,103
58,980 Northern Rock Plc 637,648
12,844 Royal Bank of Scotland Group 319,774
114,209 Scottish & Southern Energy Plc 1,138,096
58,284 Scottish Power Plc 333,961
67,260 Shire Pharmaceuticals Plc* 508,537
79,216 Smiths Group Plc 882,111
99,962 Tomkins Plc 415,447
18,078 Travis Perkins Plc 358,866
9,820,677 Vodafone Group Plc 17,980,438
86,506 Wimpey (George) 533,640
------------
49,299,901
------------
TOTAL COMMON STOCKS (COST $193,419,933) 207,721,867
------------
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
PREFERRED STOCKS -- 0.3%
GERMANY -- 0.3%
720 Porsche AG (Non Voting) 0.83% 304,338
16,266 Volkswagen AG 5.30% 539,325
------------
843,663
------------
TOTAL PREFERRED STOCKS (COST $785,280) 843,663
------------
SHORT-TERM INVESTMENTS -- 11.4%
CASH EQUIVALENTS -- 10.8%
$ 11,600,000 Bank of Montreal Time Deposit, 1.06%, due 9/02/03 11,600,000
$ 2,500,000 HSBC Bank USA, 1.00%, due 9/02/03 2,500,000
$ 11,600,000 ING Bank Time Deposit, 1.08%, due 9/02/03 11,600,000
------------
25,700,000
------------
U.S. GOVERNMENT -- 0.6%
$ 1,580,000 U.S. Treasury Bill, 0.93%, due 10/23/03(a) 1,577,377
------------
TOTAL SHORT-TERM INVESTMENTS (COST $27,277,377) 27,277,377
------------
TOTAL INVESTMENTS -- 98.7%
(Cost $221,482,590) 235,842,907
Other Assets and Liabilities (net) -- 1.3% 2,990,387
------------
TOTAL NET ASSETS -- 100.0% $238,833,294
============
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
* Non-income producing security.
(a) All or a portion of this security is held as collateral for open futures
contracts (Note 6).
8 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
AUGUST 31, 2003 (UNAUDITED)
At August 31, 2003, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
- --------------------------------------------------------------------
Financials 17.9%
Telecommunication Services 16.6
Utilities 12.5
Energy 11.2
Health Care 10.1
Information Technology 9.5
Consumer Discretionary 9.4
Consumer Staples 6.5
Industrials 5.4
Materials 0.9
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $221,482,590) (Note 1) $235,842,907
Cash 14,456
Foreign currency, at value (cost $422,977) (Note 1) 432,638
Receivable for Fund shares sold 2,617,559
Dividends and interest receivable 365,106
Foreign taxes receivable 157,249
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 1,513,215
Receivable for expenses reimbursed by Manager (Note 2) 39,556
------------
Total assets 240,982,686
------------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 101,864
Shareholder service fee 28,296
Payable for open forward foreign currency contracts
(Notes 1 and 6) 1,891,520
Payable for closed forward foreign currency contracts
(Notes 1) 47,027
Payable for variation margin on open futures contracts
(Notes 1 and 6) 8,313
Accrued expenses 72,372
------------
Total liabilities 2,149,392
------------
NET ASSETS $238,833,294
============
NET ASSETS CONSIST OF:
Paid-in capital $235,781,342
Accumulated undistributed net investment income 1,957,316
Accumulated net realized loss (13,122,294)
Net unrealized appreciation 14,216,930
------------
$238,833,294
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $238,833,294
============
SHARES OUTSTANDING:
Class III 12,357,093
============
NET ASSET VALUE PER SHARE:
Class III $ 19.33
============
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $393,029) $ 3,282,961
Interest 91,685
-----------
Total income 3,374,646
-----------
EXPENSES:
Management fee (Note 2) 547,615
Custodian fees 143,982
Audit fees 21,620
Transfer agent fees 14,996
Legal fees 3,864
Registration fees 3,128
Trustees fees and related expenses (Note 2) 1,961
Miscellaneous 1,656
Fees reimbursed by Manager (Note 2) (189,246)
-----------
549,576
Shareholder service fee (Note 2)
Class III 152,115
-----------
Net expenses 701,691
-----------
Net investment income 2,672,955
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (642,176)
Closed futures contracts 827,640
Foreign currency, forward contracts and foreign
currency related transactions 1,344,482
-----------
Net realized gain 1,529,946
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 25,645,304
Open futures contracts 603,502
Foreign currency, forward contracts and foreign
currency related transactions (1,724,858)
-----------
Net unrealized gain 24,523,948
-----------
Net realized and unrealized gain 26,053,894
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $28,726,849
===========
</Table>
See accompanying notes to the financial statements. 11
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,672,955 $ 1,994,117
Net realized gain (loss) 1,529,946 (11,166,838)
Change in net unrealized appreciation (depreciation) 24,523,948 (7,288,279)
------------ ------------
Net increase (decrease) in net assets from
operations 28,726,849 (16,461,000)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (650,526) (5,264,354)
------------ ------------
Total Distributions from net investment income (650,526) (5,264,354)
------------ ------------
Net share transactions (Note 5):
Class III 31,952,932 115,645,427
------------ ------------
Net increase in net assets resulting from Fund share
transactions 31,952,932 115,645,427
------------ ------------
Total increase in net assets 60,029,255 93,920,073
NET ASSETS:
Beginning of period 178,804,039 84,883,966
------------ ------------
End of period (including accumulated undistributed
net investment income of $1,957,316 and
distributions in excess of net investment income of
$65,113, respectively) $238,833,294 $178,804,039
============ ============
</Table>
12 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED
SIX MONTHS ENDED FEBRUARY 28,
AUGUST 31, 2003 ----------------------
(UNAUDITED) 2003 2002+
---------------- ----------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.83 $ 19.65 $ 20.00
-------- -------- -------
Income from investment operations:
Net investment income(b) 0.25 0.25 0.01
Net realized and unrealized gain (loss) 2.31 (2.46) (0.36)
-------- -------- -------
Total from investment operations 2.56 (2.21) (0.35)
-------- -------- -------
Less distributions to shareholders:
From net investment income (0.06) (0.61) --
-------- -------- -------
Total distributions (0.06) (0.61) --
-------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 19.33 $ 16.83 $ 19.65
======== ======== =======
TOTAL RETURN(a) 15.22%** (11.40)% (1.75)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $238,833 $178,804 $84,884
Net expenses to average daily net assets 0.69%* 0.69% 0.69%*
Net investment income to average daily net
assets 2.64%* 1.32% 0.36%*
Portfolio turnover rate 46%** 78% 15%**
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.19%* 0.22% 0.65%*
</Table>
* Annualized.
** Not Annualized.
+ Period from November 30, 2001 (commencement of operations) through
February 28, 2002.
(a) The total return would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 13
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO International Growth Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24,
1985. The Declaration of Trust permits the Trustees to create an unlimited
number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series of shares into classes.
The Fund seeks a high total return through investing primarily in equity
securities of non-U.S. issuers. The Fund's benchmark is the Citigroup
(f/k/a Salomon Smith Barney) Primary Market Index ("PMI") Europe, Pacific,
Asia Composite ("EPAC") Growth Style Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of investment trusts and other funds of the Trust ("underlying
funds") are valued at their net asset value as reported on each business
day. 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.
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
14
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
the current exchange rates each business day. Income and expenses
denominated in foreign currencies are translated at current exchange rates
when accrued or incurred. The Fund does not isolate realized and
unrealized gains and losses attributable to changes in exchange rates from
gains and losses that arise from changes in the market value of
investments. Such fluctuations are included with net realized and
unrealized gain or loss on investments. Net realized gains and losses on
foreign currency transactions represent gains and losses on disposition of
foreign currencies and forward foreign currency contracts, currency gains
and losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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 6 and represents the currency
exposure the Fund has acquired or hedged through currency contracts as of
August 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
15
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for all open futures contracts as of August 31, 2003.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
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.
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
16
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
another instrument. The Fund may enter into total return swap agreements,
which involve a commitment by one party in the agreement to pay interest
in exchange for a market linked return, both based on notional amounts. To
the extent 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. The Fund may also enter into contracts for
differences in which the Fund agrees with the counterparty that its return
will be based on the relative performance of two different groups or
"baskets" of securities, adjusted by an interest rate payment. To the
extent that the relative performance of the two baskets of securities
exceeds or falls short of the offsetting interest rate obligation, the
Fund will receive a payment from or make a payment to the counterparty,
respectively. 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. These financial instruments are not actively
traded on financial markets. The values assigned to these instruments are
based upon the best available information and because of the uncertainty
of the valuation, these values may differ significantly from the values
that would have been realized had a ready market for these instruments
existed, and the differences could be material. Entering into these
agreements involves, to varying degrees, elements of credit, legal, market
and documentation risk in excess of the amounts recognized 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 the price of the security or index
underlying these transactions. At August 31, 2003, there were no open swap
agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 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 carryover for
U.S. federal income tax
17
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
purposes. Therefore, no provision for U.S. federal income or excise tax is
necessary. Taxes on foreign interest and dividend income are withheld in
accordance with the applicable country's tax treaty with the United
States.
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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests.
Income dividends and capital gain distrbutions 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.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset any future capital gains, if any, to the extent permitted by the
Code of $2,281,901 expiring in 2011. The Fund has elected to defer to
March 1, 2003 post-October capital losses of $11,113,912.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the
amortization of premiums and discounts. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. Dividends
representing a return of capital are reflected as a reduction of cost,
when the amount of the return of capital is conclusively determined. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
18
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .54% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $1,409. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, substantially all of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003
aggregated $98,173,382 and $84,470,027, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$222,421,947 $17,441,777 $(4,020,817) $13,420,960
</Table>
19
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 46.9% of the outstanding shares of the fund were held
by four shareholders, each holding in excess of 10% of the outstanding
shares of the Fund. Two of the shareholders are funds of GMO Trust.
Investment activities of these shareholders may have a material effect on
the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ ------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ---------- ------------
Shares sold 4,752,592 $ 88,509,899 9,766,373 $179,023,615
Shares issued to shareholders in reinvestment
of distributions 31,461 610,037 196,825 3,476,163
Shares repurchased (3,048,613) (57,167,004) (3,661,941) (66,854,351)
---------- ------------ ---------- ------------
Net increase 1,735,440 $ 31,952,932 6,301,257 $115,645,427
========== ============ ========== ============
</Table>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003, is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
---------- ---------------- ----------------- ------------ --------------
Buys
10/31/03 AUD 5,863,838 $ 3,772,465 $ 87,245
10/31/03 CAD 3,734,681 2,684,540 140,798
9/26/03 CHF 11,268,912 8,050,686 (317,967)
9/26/03 DKK 46,072,939 6,807,297 235,323
</Table>
20
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
---------- ---------------- ----------------- ------------ --------------
9/26/03 EUR 20,032,193 $21,978,834 $(232,249)
9/26/03 GBP 1,803,654 2,848,469 48,396
10/31/03 HKD 1,559,888 200,000 347
10/31/03 JPY 1,887,425,600 16,207,657 248,674
9/26/03 NOK 54,655,790 7,282,277 (70,111)
9/26/03 SEK 61,478,000 7,344,389 270,056
10/31/03 SGD 11,827,640 6,749,688 (55,196)
---------
$ 355,316
=========
Sales
10/31/03 AUD 6,449,829 $ 4,149,459 $(206,356)
10/31/03 CAD 20,751,010 14,916,113 (466,908)
9/26/03 DKK 18,333,840 2,708,833 91,167
9/26/03 EUR 10,359,812 11,366,535 260,350
9/26/03 GBP 6,992,148 11,042,538 126,140
10/31/03 HKD 12,870,000 1,650,118 (2,948)
10/31/03 JPY 2,085,674,000 17,910,052 (363,113)
9/26/03 NOK 4,607,455 613,892 3,285
10/31/03 NZD 1,798,080 1,030,953 (55,116)
9/26/03 SEK 24,404,340 2,915,433 (121,556)
10/31/03 SGD 7,865,750 4,488,753 1,434
---------
$(733,621)
=========
</Table>
CURRENCY ABBREVIATIONS:
<Table>
AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
DKK - Danish Krona
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
</Table>
21
<Page>
GMO INTERNATIONAL GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
<Table>
<Caption>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- --------------------- ------------------ ------------ --------------
Buys
32 CAC40 September 2003 $1,167,287 $ 8,628
19 DAX September 2003 1,820,304 3,553
50 FTSE 100 September 2003 3,299,926 (55,049)
11 Hang Seng September 2003 768,654 16,180
40 IBEX 35 September 2003 3,132,748 17,928
12 MIB30 September 2003 1,679,589 (9,006)
99 MSCI September 2003 2,217,320 4,999
13 OMX September 2003 91,461 (723)
54 S&P Toronto 60 September 2003 3,296,486 162,011
40 SPI 200 September 2003 2,069,258 24,981
36 TOPIX September 2003 3,093,075 48,680
--------
$222,182
========
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
22
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
COMMON STOCKS -- 95.9%
AUTO & TRANSPORTATION -- 5.1%
15,000 AMR Corp* 165,000
2,800 ArvinMeritor Inc 52,696
3,500 Autoliv Inc 105,735
12,900 Burlington Northern Santa Fe Co 365,715
2,800 Continental Airlines Inc* 42,728
2,800 Cooper Tire & Rubber Co 50,400
5,700 Dana Corp 87,894
11,600 Delta Air Lines Inc 149,292
44,154 Ford Motor Co 510,420
34,182 General Motors Corp 1,404,880
8,000 Goodyear Tire & Rubber Co 56,960
2,600 Lear Corp* 144,430
3,700 Northwest Airlines Corp* 33,189
700 Paccar Inc 59,640
2,400 Tidewater Inc 68,928
------------
3,297,907
------------
CONSUMER DISCRETIONARY -- 11.1%
1,800 Abercrombie & Fitch Co, Class A* 54,792
3,100 American Eagle Outfitters Inc* 53,196
62,000 AOL Time Warner Inc* 1,014,320
2,300 Autonation Inc* 43,217
1,100 Belo Corp 25,652
1,200 Big Lots Inc* 21,960
4,500 Blockbuster Inc 92,205
2,700 Callaway Golf Co 40,581
3,400 Catalina Marketing Corp* 47,294
38,300 Cendant Corp* 688,634
3,800 Clear Channel Communications Inc* 171,456
1,500 Columbia Sportswear Co* 76,500
4,300 Dillard's Inc 65,059
5,000 EarthLink Inc* 37,950
14,000 Eastman Kodak Co 390,460
6,900 Federated Department Stores Inc 301,530
5,800 Fox Entertainment Group Inc, Class A* 183,164
2,500 G TECH Holdings Corp 105,950
3,200 Hasbro Inc 59,200
7,500 Home Depot Inc 241,200
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- CONTINUED
9,100 IKON Office Solutions Inc 65,611
6,200 Jones Apparel Group Inc 191,518
31,600 Liberty Media Corp, Series A* 382,360
5,600 May Department Stores Co 154,448
11,000 McDonald's Corp 246,620
1,400 Mohawk Industries Inc* 102,144
5,900 Penney (JC) Co Inc 125,198
3,800 R.R. Donnelley and Sons 95,532
2,800 Sabre Holdings Corp 63,336
8,400 Saks Inc* 105,756
17,500 Sears Roebuck & Co 770,350
20,500 Service Corp International* 82,000
9,300 Toys R Us Inc* 126,666
1,400 Tribune Co 64,750
10,500 VeriSign Inc* 157,185
2,400 VF Corp 96,240
6,400 Viacom Inc, Class A 287,936
2,200 Viacom Inc, Class B 99,000
200 Washington Post Co 139,206
500 Waste Connections Inc* 17,615
1,200 Whirlpool Corp 83,496
------------
7,171,287
------------
CONSUMER STAPLES -- 4.5%
3,500 Albertsons Inc 73,570
36,700 Altria Group Inc 1,512,774
1,000 Colgate-Palmolive Co 55,280
1,200 General Mills Co 55,632
1,100 Hormel Foods Corp 23,760
7,200 Kroger Co* 138,312
4,200 PepsiAmericas Inc 58,464
12,800 Rite Aid Corp* 64,640
3,800 RJ Reynolds Tobacco Holdings 129,770
22,100 Safeway Inc* 539,461
1,900 Smithfield Foods Inc* 38,475
13,024 Tyson Foods Inc, Class A 145,869
1,800 UST Inc 60,120
3,900 Winn-Dixie Stores Inc 39,195
------------
2,935,322
------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 27.4%
2,100 AFLAC Inc 67,221
3,600 Allmerica Financial Corp* 85,212
11,500 Allstate Corp 411,125
700 AMB Property Corp, REIT 19,950
1,200 AMBAC Financial Group 77,904
2,300 American Financial Group Inc 50,324
400 American National Insurance Co 34,396
6,600 Ameritrade Holding Corp* 71,742
2,600 AmerUs Group Co 83,798
3,000 Astoria Financial Corp 96,420
12,700 Bank of America Corp 1,006,475
3,400 Bank of Hawaii Corp 115,260
5,700 Bank One Corp 224,979
3,780 Bear Stearns Cos Inc 264,524
80 Berkshire Hathaway Inc* 202,400
318 BOK Financial Corp* 12,599
6,600 Capital One Financial Corp 352,440
2,876 Charter One Financial Inc 89,156
4,600 Checkfree Corp* 105,708
4,500 Cigna Corp 214,560
38,700 Citigroup Inc 1,677,645
2,700 CNA Financial Corp* 58,725
6,900 Comerica Inc 340,446
700 Commerce Group Inc 25,739
5,400 Countrywide Financial Corp 366,390
1,300 Edwards (AG) Inc 46,800
1,300 Fair Isaac Corp 76,180
21,000 Fannie Mae 1,360,590
8,125 Fidelity National Financial Inc 234,812
4,300 First American Corp 103,974
1,200 First Tennessee National Corp 49,620
2,000 Flagstar Bancorp Inc 39,060
21,384 FleetBoston Financial Corp 632,753
7,200 Freddie Mac 382,680
1,900 GATX Corp 40,242
800 General Growth Properties, REIT 55,480
200 Global Payments Inc 7,550
2,100 Golden West Financial Corp 181,167
3,300 Greater Bay Bancorp 67,881
3,900 Greenpoint Financial Corp 132,132
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
5,500 Hartford Financial Services Group Inc 292,710
1,800 Hudson City Bancorp Inc 52,092
24,880 J.P. Morgan Chase & Co 851,394
1,900 John Hancock Financial Services 58,007
12,600 KeyCorp 343,098
2,300 Lehman Brothers Holdings Inc 151,179
3,900 Lincoln National Corp 138,138
10,600 Loews Corp 436,296
700 M&T Bank Corp 58,968
2,000 MBIA Inc 112,920
8,800 MBNA Corp 205,392
3,300 MetLife Inc 93,786
5,100 MGIC Investment Corp 287,487
1,200 Mony Group Inc 33,648
10,500 Morgan Stanley 512,295
8,700 National City Corp 275,616
1,600 National Processing Inc* 33,088
3,800 Nationwide Financial Services, Class A 112,100
4,400 Old Republic International Corp 147,796
1,000 Pacific Capital Bancorp 33,040
5,800 PMI Group Inc 205,204
6,800 PNC Financial Services Group 323,680
1,500 Popular Inc 56,520
2,400 Prologis Trust 67,656
3,200 Provident Financial Group 85,472
16,100 Providian Financial Corp* 165,025
4,800 Radian Group Inc 228,432
5,800 Regions Financial Corp 204,508
2,600 Ryder System Inc 78,078
2,000 Safeco Corp 72,120
2,400 Silicon Valley Bancshares* 56,448
800 Simon Property Group Inc, REIT 34,168
3,100 Southtrust Corp 89,869
2,800 Southwest Bancorp of Texas Inc 103,488
5,600 Sovereign Bancorp Inc 110,208
500 Student Loan Group 61,480
1,000 Suntrust Banks Inc 61,130
4,700 Torchmark Corp 189,692
10,600 Travelers Property Casualty Corp, Class A 163,134
2,000 Union Planters Corp 63,800
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
FINANCIAL SERVICES -- CONTINUED
3,100 UnionBanCal Corp 145,545
16,600 Unumprovident Corp 234,060
1,100 W Holding Co Inc 19,404
7,500 Wachovia Corp 316,125
10,700 Washington Mutual Inc 417,086
9,100 Wells Fargo & Co 456,274
------------
17,703,715
------------
HEALTH CARE -- 9.7%
1,300 AdvancePCS* 52,234
2,100 Aetna Inc 119,700
1,100 Becton Dickinson & Co 40,194
35,900 Bristol Myers Squibb Co 910,783
1,300 Genzyme Corp - General Division* 61,295
6,000 Health Net Inc* 190,980
1,100 ICOS Corp* 42,834
1,700 Invitrogen Corp* 98,039
4,112 Medco Health Solutions Inc* 109,790
34,100 Merck & Co Inc 1,715,912
1,800 Mylan Laboratories Inc 65,520
71,700 Pfizer Inc 2,145,264
33,600 Schering Plough Corp 510,384
2,400 Steris Corp* 56,208
3,000 Watson Pharmaceutical Inc* 123,300
4,400 WebMD Corp* 45,320
------------
6,287,757
------------
INTEGRATED OILS -- 3.9%
2,300 Amerada Hess Corp 108,445
23,309 ConocoPhillips 1,301,575
15,700 Exxon Mobil Corp 591,890
14,300 Marathon Oil Corp 398,827
3,600 Occidental Petroleum Corp 123,588
------------
2,524,325
------------
MATERIALS & PROCESSING -- 2.5%
4,400 Allegheny Technologies Inc 32,780
1,100 AptarGroup Inc 43,076
3,300 Ashland Inc 109,098
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
MATERIALS & PROCESSING -- CONTINUED
1,700 Dow Chemical Co 58,701
2,400 Du Pont (E.I.) De Nemours 107,376
3,000 Engelhard Corp 84,210
600 Great Lakes Chemical Corp 12,714
12,000 Hercules Inc* 134,400
10,200 IMC Global Inc 79,866
3,600 Lafarge Corp 123,264
2,400 Lubrizol Corp 81,600
3,000 Lyondell Chemical Co 42,900
2,300 Monsanto Co 59,133
8,100 Owens Illinois Inc* 92,745
1,100 Precision Castparts Corp 38,940
2,700 RPM Inc 36,828
2,200 Sealed Air Corp* 107,052
2,500 Sonoco Products Co 56,925
13,500 United States Steel Corp 248,535
1,400 Valspar Corp 65,058
------------
1,615,201
------------
OTHER -- 1.6%
5,300 Brunswick Corp 142,994
800 Carlisle Cos Inc 36,392
2,400 FMC Corp* 59,736
14,800 Honeywell International Inc 429,052
1,400 Johnson Controls Inc 138,600
600 Lancaster Colony Corp 23,862
3,200 Textron Inc 144,000
2,600 Tyco International Ltd 53,508
------------
1,028,144
------------
OTHER ENERGY -- 2.2%
2,025 Apache Corp 139,684
2,300 Arch Coal Inc 52,785
3,300 Burlington Resources Inc 159,786
9,000 Calpine Corp* 50,760
12,500 Chesapeake Energy Corp 135,500
40 Cross Timbers Royalty Trust 898
1,600 Devon Energy Corp 82,800
10,300 Halliburton Co 249,054
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
OTHER ENERGY -- CONTINUED
500 Helmerich & Payne Inc 14,625
500 National-Oilwell Inc* 9,790
900 Patina Oil & Gas Corp 33,345
2,000 Peabody Energy Corp 63,300
2,100 Pogo Producing Co 96,516
5,600 Transocean Inc* 118,272
2,200 Valero Energy Corp 86,680
600 Westport Resources Corp* 14,280
5,433 XTO Energy Inc 114,039
------------
1,422,114
------------
PRODUCER DURABLES -- 5.0%
6,100 American Power Conversion Corp 109,312
11,800 Boeing Co 441,202
3,800 Centex Corp 286,596
2,400 Cooper Industries Ltd, Class A 122,136
3,200 Crane Co 81,888
7,600 Crown Castle International Corp* 81,700
2,500 Cummins Inc 124,600
8,100 DR Horton Inc 252,072
5,000 Goodrich Co 130,150
1,800 Hubbell Inc, Class B 71,928
3,400 KB HOME 194,548
3,200 Lennar Corp 215,200
1,700 MDC Holdings Inc 86,853
1,600 Northrop Grumman Corp 152,768
4,000 Pulte Homes Inc 266,240
1,000 Ryland Group Inc 67,160
2,600 Steelcase Inc 30,784
4,100 Thomas & Betts Corp* 70,028
5,800 Toll Brothers Inc* 172,376
28,300 Xerox Corp* 305,074
------------
3,262,615
------------
TECHNOLOGY -- 9.1%
19,800 3 Com Corp* 112,853
4,900 Adaptec Inc* 35,819
7,400 Arrow Electronics Inc* 152,736
2,300 AVX Corp 32,154
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
TECHNOLOGY -- CONTINUED
6,900 BMC Software Inc* 101,292
9,300 Ceridian Corp* 180,792
5,800 Cisco Systems Inc* 111,070
2,300 Citrix Systems Inc* 47,357
28,900 Computer Associates International Inc 740,707
9,400 Comverse Technology Inc* 155,006
39,200 Corning Inc* 323,400
5,900 Cree Inc* 93,338
13,700 Electronic Data Systems Corp 299,071
20,500 EMC Corp* 261,375
5,500 Foundry Networks Inc* 106,975
46,887 Hewlett-Packard Co 933,989
9,100 IBM Corp 746,291
8,900 Ingram Micro Inc, Class A* 125,935
6,900 Juniper Networks Inc* 118,818
3,700 Keane Inc* 54,501
2,300 Macromedia Inc* 54,832
54,100 Oracle Corp* 691,398
2,200 PerkinElmer Inc 36,388
2,400 Perot Systems Corp* 24,624
400 Reynolds & Reynolds Inc 11,620
5,200 Rockwell Automation 141,544
3,300 Symbol Technologies Inc 44,682
15,700 Tellabs Inc* 102,521
4,800 Vishay Intertechnology Inc* 79,056
------------
5,920,144
------------
UTILITIES -- 13.8%
16,600 AES Corp* 107,568
2,300 Alliant Energy Corp 48,139
2,000 Alltel Corp 91,600
1,100 Ameren Corp 46,750
8,100 American Electric Power Co Inc 229,311
33,691 AT&T Corp 751,309
35,700 AT&T Wireless Services Inc* 307,734
21,200 Bellsouth Corp 534,240
4,400 Cablevision Systems Corp, Class A* 88,660
12,700 Centerpoint Energy Inc 107,823
11,100 Citizens Communications Co* 126,540
8,200 CMS Energy Corp 54,701
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
UTILITIES -- CONTINUED
4,490 Comcast Corp, Class A* 133,578
13,300 Comcast Corp, Special Class A* 377,188
2,600 Consolidated Edison Inc 102,778
3,500 Constellation Energy Group Inc 127,365
6,900 Cox Communications Inc, Class A* 225,768
2,300 DQE Inc 33,925
1,800 DTE Energy Co 62,838
11,700 Duke Energy Co 199,836
10,100 Edison International* 190,486
2,100 Energen Corp 74,928
2,600 Energy East Corp 56,134
1,700 Exelon Corp 100,130
1,900 FPL Group Inc 117,534
2,600 Great Plains Energy Inc 75,296
1,600 Kinder Morgan Inc 85,200
1,300 Nicor Inc 44,187
1,900 OGE Energy Corp 41,287
24,700 PG & E Corp* 547,599
2,800 Pinnacle West Capital Corp 96,040
6,200 PPL Corp 245,954
6,400 Public Service Enterprise Group Inc 270,976
3,300 Puget Energy Inc 71,940
2,600 Questar Corp 83,408
6,800 Qwest Communications International Inc* 30,260
45,753 SBC Communications Inc 1,028,985
8,600 Sempra Energy 255,850
3,200 Southern Co 90,816
46,000 Sprint Corp (Fon Group) 679,420
6,800 Teco Energy Inc 80,444
4,400 TXU Corp 96,800
2,200 UGI Corp 67,210
13,852 Verizon Communications Inc 489,253
2,000 Wisconsin Energy Corp 58,280
11,500 Xcel Energy Inc 168,475
------------
8,904,543
------------
TOTAL COMMON STOCKS (COST $59,519,507) 62,073,074
------------
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
RIGHTS AND WARRANTS -- 0.0%
TECHNOLOGY -- 0.0%
800 Seagate Technology Inc Rights(a) 8
------------
TOTAL RIGHTS AND WARRANTS (COST $0) 8
------------
SHORT-TERM INVESTMENTS -- 8.0%
CASH EQUIVALENTS -- 4.0%
607,980 Dreyfus Money Market Fund(b) 607,980
$ 1,421,638 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.05%, due 9/29/03(b) 1,421,638
586,426 Merrimac Money Market Fund(b) 586,426
------------
2,616,044
------------
U.S. GOVERNMENT -- 0.2%
$ 100,000 U.S. Treasury Bill, 0.93%, due 10/23/03(c) 99,828
------------
REPURCHASE AGREEMENTS -- 3.8%
$ 2,442,965 Citigroup Global Markets Repurchase Agreement, dated
8/29/03, due
9/2/03, with a maturity value of $2,443,155 and an
effective yield of 0.70%,
collaterized by a U.S. Treasury Bill with a rate of
1.175%, maturity date
of 9/25/03 and a market value of $2,494,876. 2,442,965
------------
TOTAL SHORT-TERM INVESTMENTS (COST $5,158,837) 5,158,837
------------
TOTAL INVESTMENTS -- 103.9%
(Cost $64,678,344) 67,231,919
Other Assets and Liabilities (net) -- (3.9%) (2,516,869)
------------
TOTAL NET ASSETS -- 100.0% $ 64,715,050
============
</Table>
<Table>
NOTES TO THE SCHEDULE OF INVESTMENTS:
REIT - Real Estate Investment Trust
</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) Represents investment of security lending collateral (Note 1).
(c) All or a portion of this security has been segregated to cover margin
requirements on open financial futures contracts (Note 6).
10 See accompanying notes to the financial statements.
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$2,514,862 (cost $64,678,344) (Note 1) $67,231,919
Dividends and interest receivable 120,927
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 21,125
Receivable for expenses reimbursed by Manager (Note 2) 7,967
-----------
Total assets 67,381,938
-----------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 2,616,044
Payable to affiliate for (Note 2):
Management fee 17,370
Shareholder service fee 7,895
Accrued expenses 25,579
-----------
Total liabilities 2,666,888
-----------
NET ASSETS $64,715,050
===========
NET ASSETS CONSIST OF:
Paid-in capital $65,473,252
Accumulated undistributed net investment income 178,805
Accumulated net realized loss (3,539,351)
Net unrealized appreciation 2,602,344
-----------
$64,715,050
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $64,715,050
===========
SHARES OUTSTANDING:
Class III 6,749,052
===========
NET ASSET VALUE PER SHARE:
Class III $ 9.59
===========
</Table>
See accompanying notes to the financial statements. 11
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $62) $ 751,178
Interest (including securities lending income of $2,015) 5,835
-----------
Total income 757,013
-----------
EXPENSES:
Management fee (Note 2) 104,226
Audit fees 20,240
Custodian and transfer agent fees 15,608
Registration fees 1,840
Legal fees 1,380
Trustees fees and related expenses (Note 2) 771
Miscellaneous 552
Fees reimbursed by Manager (Note 2) (39,620)
-----------
104,997
Shareholder service fee (Note 2) - Class III 47,376
-----------
Net expenses 152,373
-----------
Net investment income 604,640
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (1,756,628)
Closed futures contracts 59,481
-----------
Net realized loss (1,697,147)
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 13,427,252
Open futures contracts 35,700
-----------
Net unrealized gain 13,462,952
-----------
Net realized and unrealized gain 11,765,805
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,370,445
===========
</Table>
12 See accompanying notes to the financial statements.
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 604,640 $ 808,311
Net realized loss (1,697,147) (546,050)
Change in net unrealized appreciation (depreciation) 13,462,952 (11,858,189)
----------- ------------
Net increase (decrease) in net assets from
operations 12,370,445 (11,595,928)
----------- ------------
Distributions to shareholders from:
Net investment income
Class III (597,276) (856,517)
----------- ------------
Total distributions from net investment income (597,276) (856,517)
----------- ------------
Net realized gains
Class III -- (1,978,445)
----------- ------------
Total distributions from net realized gains -- (1,978,445)
----------- ------------
(597,276) (2,834,962)
----------- ------------
Net share transactions (Note 5):
Class III (8,981,290) (21,268,403)
----------- ------------
Decrease in net assets resulting from net share
transactions (8,981,290) (21,268,403)
----------- ------------
Total increase (decrease) in net assets 2,791,879 (35,699,293)
NET ASSETS:
Beginning of period 61,923,171 97,622,464
----------- ------------
End of period (including accumulated undistributed
net investment income of $178,805 and $171,441,
respectively) $64,715,050 $ 61,923,171
=========== ============
</Table>
See accompanying notes to the financial statements. 13
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000*
---------------- ----------- ----------- ----------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.05 $ 10.73 $ 10.84 $ 8.79 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.09+ 0.15+ 0.18+ 0.20 0.11+
Net realized and unrealized gain
(loss) 1.54 (2.36) 0.05 2.06 (1.24)
------- ------- ------- ------- -------
Total from investment operations 1.63 (2.21) 0.23 2.26 (1.13)
------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.09) (0.15) (0.20) (0.14) (0.08)
From net realized gains -- (0.32) (0.14) (0.07) --
------- ------- ------- ------- -------
Total distributions (0.09) (0.47) (0.34) (0.21) (0.08)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.59 $ 8.05 $ 10.73 $ 10.84 $ 8.79
======= ======= ======= ======= =======
TOTAL RETURN(a) 20.31%++ (21.05)% 2.16% 26.00% (11.36)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $64,715 $61,923 $97,622 $50,864 $38,650
Net expenses to average daily net
assets 0.48%** 0.48% 0.48% 0.48% 0.48%**
Net investment income to average
daily net assets 1.91%** 1.56% 1.67% 2.04% 1.94%**
Portfolio turnover rate 39%++ 114% 61% 89% 26%++
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.13%** 0.15% 0.09% 0.17% 0.25%**
</Table>
(a) The total return would have been lower had certain expenses not been
reimbursed during the periods shown.
* Period from August 2, 1999 (commencement of operations) through February
29, 2000.
** Annualized
+ Computed using average shares outstanding throughout the period.
++ Not Annualized.
14 See accompanying notes to the financial statements.
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Intrinsic Value Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 25, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund seeks long-term capital growth through investment in equity
securities. The Fund's benchmark is the Russell 1000 Value Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates fair value. Shares of mutual funds are
valued at their net asset value as reported on each business day.
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.
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
15
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for all
open futures contracts as of August 31, 2003.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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
16
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
disagree as to the meaning of contractual terms in the agreements, or that
there may be unfavorable changes in the price of the security or index
underlying these transactions. At August 31, 2003, the Fund had no open
swap contracts.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of collateral, the risk of delay in recovery or
loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund loaned securities having a market
value of $2,514,862 collateralized by cash in the amount of $2,616,044
which was invested in short-term instruments.
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 quarterly, and from net realized short-term and long-term capital
gains 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.
17
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
The Fund elected to defer to March 1, 2003 post-October losses of
$613,338.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable foreign withholding taxes, is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the amortization of premiums and discounts. Non-cash
dividends, if any, are recorded at the fair market value of the securities
received. Dividends representing a return of capital are reflected as a
reduction of cost, when the amount of the return of capital is
conclusively determined. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .33% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $587. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
18
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
As of August 31, 2003, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $23,609,602 and $33,499,704, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$65,737,182 $4,128,800 $(2,634,063) $1,494,737
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 91.5% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's shares
outstanding. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ ------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ---------- ------------
Shares sold 1,032,892 $ 9,627,057 3,468,670 $ 30,846,300
Shares issued to shareholders
in reinvestment of distributions 39,319 350,123 213,208 2,062,934
Shares repurchased (2,015,915) (18,958,470) (5,090,081) (54,177,637)
---------- ------------ ---------- ------------
Net decrease (943,704) $ (8,981,290) (1,408,203) $(21,268,403)
========== ============ ========== ============
</Table>
19
<Page>
GMO INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FUTURES CONTRACTS
<Table>
<Caption>
Number of Contract Net Unrealized
Contracts Type Expiration Date Value Appreciation
--------- ---------------- ------------------- ------------- --------------
Buys
7 S&P 500 September 2003 $1,763,475 $48,769
</Table>
At August 31, 2003 the Fund had sufficient cash and/or securities to cover
any commitments or margin requirements of the relevant broker or exchange.
20
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 98.5%
ASSET-BACKED SECURITIES -- 77.6%
AIRLINES -- 1.9%
32,600,000 Aircraft Finance Trust Series 99-1A Class A1,
Variable Rate, 1 mo. LIBOR + .48%, 1.59%,
due 05/15/24 22,820,000
--------------
AUTOMOTIVE -- 4.0%
15,000,000 Capital Auto Receivables Asset Trust (GMAC) Series 03-1
Class A3A, 2.75%, due 04/16/07 15,046,875
14,500,000 Ford Credit Auto Owner Trust Series 03-A Class A4A,
2.70%, due 06/15/07 14,515,257
20,000,000 Volkswagen Credit Auto Master Trust Series 00-1 Class
A,
Variable Rate, 1 mo. LIBOR + .16%, 1.27%,
due 08/20/07 20,018,000
--------------
49,580,132
--------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 1.3%
16,110,831 Morgan Stanley Dean Witter Capital I Series 03-TOP9
Class A1, 3.98%, due 11/13/36 15,798,684
--------------
CREDIT CARDS -- 17.3%
15,000,000 American Express Credit Account Master Trust Series
01-6 Class A, Variable Rate, 1 mo. LIBOR + .12%,
1.23%, due 12/15/08 15,025,781
15,000,000 American Express Credit Account Master Trust Series
02-6 Class A, Variable Rate, 1 mo. LIBOR + .14%,
1.25%, due 03/15/10 15,023,437
16,000,000 Bank One Issuance Trust Series 02-A5 Class A5,
Variable Rate, 1 mo. LIBOR + .12%, 1.23%,
due 06/15/10 16,017,500
20,000,000 Capital One Master Trust Series 00-4 Class A,
Variable Rate, 1 mo. LIBOR + .14%, 1.25%,
due 08/15/08 19,974,000
20,000,000 Chase Credit Card Master Trust Series 01-6 Class A,
Variable Rate, 1 mo. LIBOR + .13%, 1.24%,
due 03/16/09 20,031,800
15,650,000 Chase Credit Card Master Trust Series 02-1 Class A,
Variable Rate, 1 mo. LIBOR + .10%, 1.21%,
due 06/15/09 15,655,502
18,400,000 Discover Card Master Trust I Series 00-5 Class A,
Variable Rate, 1 mo. LIBOR + .18%, 1.29%,
due 11/15/07 18,449,594
10,000,000 Discover Card Master Trust I Series 02-3 Class A,
Variable Rate, 1 mo. LIBOR + .11%, 1.22%,
due 11/17/09 10,007,812
20,000,000 Earls Five Ltd Series EMTN, 3 mo. GBP LIBOR + .14%,
3.74%, due 02/27/08 31,413,555
20,000,000 Gracechurch Card Funding Plc Series 2 Class A, 1 mo.
LIBOR + .12%, 1.23%, due 10/15/09 20,008,594
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
CREDIT CARDS -- CONTINUED
22,000,000 MBNA Master Credit Card Trust Series 03-A3 Class A3,
Variable Rate, 1 mo. LIBOR + .12%, 1.23%,
due 08/16/10(a) 21,931,250
8,000,000 Neiman Marcus Group Credit Card Master Trust Series
00-1 Class A, 144A, Variable Rate, 1 mo. LIBOR +
.27%, 1.38%, due 04/15/08 8,007,200
--------------
211,546,025
--------------
HIGH YIELD COLLATERALIZED DEBT OBLIGATIONS -- 5.4%
22,338,462 Great Point CBO Ltd Series 98-1A Class A1, 144A,
Variable Rate, 6 mo. LIBOR + .30%, 1.56%,
due 10/15/10 21,655,575
8,000,000 Nomura CBO Ltd Series 97-2 Class A2, 144A, Step up,
6.26%, due 10/30/09 7,974,800
21,054,770 Northstar CBO Ltd Series 97-2 Class A2, 144A,
Variable Rate, Step Up, 6.62%, due 07/15/09 17,896,554
2,905,235 Pacific Life CBO Series 98-1A Class A2A, 144A, Step Up,
6.56%, due 02/15/10 2,899,976
14,800,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A,
Step Up, 6.33%, due 09/15/09 15,176,512
--------------
65,603,417
--------------
HOME EQUITY -- 1.2%
15,000,000 CIT Group Home Equity Loan Trust Series 03-1 Class A3,
2.79%, due 03/20/29 14,878,125
--------------
INSURED AUTO -- 3.0%
25,000,000 Aesop Funding II LLC Series 03-2A Class A1, MBIA,
2.74%, due 06/20/07 25,250,000
10,905,047 Americredit Automobile Receivables Trust Series 00-B
Class A4,
Variable Rate, 1 mo. LIBOR + .20%, 1.31%,
due 04/05/07 10,898,231
--------------
36,148,231
--------------
INSURED BANKING -- 1.0%
11,750,000 Banco Santander Series MBIA, 6.50%, due 11/01/05 12,548,365
--------------
INSURED CREDIT CARDS -- 1.3%
16,000,000 Providian Gateway Master Trust Series 00-C Class A,
144A, MBIA, Variable Rate, 1 mo. LIBOR + .22%, 1.33%,
due 03/15/07 16,000,000
--------------
INSURED EMERGING MARKETS COLLATERALIZED DEBT OBLIGATIONS -- 3.1%
20,268,892 Anfield Road I Ltd. Series 1 Class A, CapMAC, PTE,
Variable Rate, 6 mo. LIBOR + .25%, 1.38%,
due 11/06/06 19,748,184
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
INSURED EMERGING MARKETS COLLATERALIZED DEBT OBLIGATIONS -- CONTINUED
4,606,819 Augusta Funding Ltd Series 97-B Class A, MBIA,
Variable Rate, 6 mo. LIBOR + .19%, 1.46%,
due 04/10/10 4,595,302
13,412,052 Starvest Emerging Markets CBO-I Series 1A, Class A,
Variable Rate, 6 mo. LIBOR + .19%,, 1.53%,
due 07/30/11 13,092,577
--------------
37,436,063
--------------
INSURED HIGH YIELD COLLATERALIZED DEBT OBLIGATIONS -- 8.2%
1,969,205 Augusta Funding Ltd Series 10A Class A-1 144A, CapMAC,
6.65%, due 06/30/04 1,998,743
3,160,660 Cigna CBO Ltd Series 96-1 Class A2, 144A, Step Up,
6.46%, due 11/15/08 3,204,119
7,684,403 Clydesdale CBO I Ltd Series 1A Class A2, 6.83%,
due 03/25/11 7,780,458
6,384,287 DLJ CBO Ltd Series 1A Class A2, 144A, , 6.68%,
due 04/15/11 6,384,287
8,449,594 FC CBO Series 03 - 1AW Class A1, 144A,
Variable Rate, 1 mo. LIBOR + .38%, 1.70%,
due 06/03/09 8,419,767
9,482,500 GSC Partners CDO Fund Ltd Series 1A Class A, 144A,
Variable Rate, 6 mo. LIBOR + .40%, 1.66%,
due 05/09/12 9,435,087
23,000,000 GSC Partners CDO Fund Ltd Series 2A Class A, 144A,
Variable Rate, 6 mo. LIBOR + .52%, 1.74%,
due 05/22/13 22,971,250
19,803,927 Northstar CBO Ltd Series 97-2I Class A2, 144A,
Variable Rate, Step Up, 4.12%, due 07/15/09 19,754,417
21,071,000 Spirit CBO Series 03-4AW Class A,
Variable Rate, 6 mo. LIBOR + .50%, 1.68%,
due 05/23/11 21,071,000
--------------
101,019,128
--------------
INSURED HOME EQUITY -- 4.0%
8,350,428 Residential Funding Mortgage Securities Series 03-HS1
AII,
Variable Rate, 1 mo. LIBOR + .29%, 1.40%,
due 01/25/33 8,353,768
21,000,000 Wachovia Asset Securization Inc Series 02-HE1 Class A,
Variable Rate, 1 mo. LIBOR + .37%, 1.48%,
due 09/27/32 21,019,914
19,947,610 Wachovia Asset Securization Inc Series 03-HE1 Class A1,
FGIC,
Variable Rate, 1 mo. LIBOR + .29%, 1.40%,
due 03/25/33 19,950,500
--------------
49,324,182
--------------
INSURED INSURANCE PREMIUMS -- 3.5%
29,200,000 Meridian Funding Co LLC, MBIA, 144A,
Variable Rate, 1 mo. LIBOR + .38%, 1.49%,
due 06/22/11 29,152,404
12,000,000 PFS Financing Corp Series 01-FA Class A, MBIA, 144A,
Variable Rate, 1 mo. LIBOR + .33%, 1.44%,
due 06/15/08 11,925,000
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
INSURED INSURANCE PREMIUMS -- CONTINUED
2,266,664 Polaris Funding Company Series EMTN,
Variable Rate, 1 mo. LIBOR + .45%, 1.57%,
due 01/07/05 2,263,831
--------------
43,341,235
--------------
INSURED OIL RECEIVABLES -- 2.5%
28,650,000 Pemex Finance Ltd, AMBAC, 6.30%, due 05/15/10 30,798,750
--------------
INSURED PERPETUAL LOAN COLLATERALIZED DEBT OBLIGATIONS -- 2.2%
28,000,000 Augusta Funding Ltd Series 10A Class F-1, 144A, CapMAC,
Variable Rate, 3 mo. LIBOR + .25%, 1.35%,
due 06/30/17 27,160,000
--------------
INSURED RESIDENTIAL MORTGAGE-BACKED SECURITIES -- 3.4%
13,500,000 RMAC Series 03-NS1A Class A2A, 144A,
Variable Rate, 3 mo. GBP LIBOR + .45%, 1.63%,
due 06/12/35 21,364,302
13,000,000 RMAC Series 03-NS2A Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .40%, 4.04%,
due 09/12/35 20,562,750
--------------
41,927,052
--------------
RATE REDUCTION BONDS -- 2.7%
26,913,600 California Infrastructure PG&E Series 97-1 Class A7,
6.42%, due 09/25/08 28,692,421
4,773,286 California Infrastructure SCE Series 97-1 Class A5,
6.28%, due 09/25/05 4,787,083
--------------
33,479,504
--------------
RESIDENTIAL MORTGAGED-BACKED SECURITIES -- 4.9%
20,610,808 Interstar Millennium Trust Series 02-1G Class A2,
Variable Rate, 3 mo. LIBOR + .18%, 1.29%,
due 07/07/34 20,564,111
21,500,000 Interstar Millennium Trust Series 03-3G Class A2,
Variable Rate, 3 mo. LIBOR + .25%, 1.36%,
due 09/25/35 21,500,000
17,937,254 Medallion Trust Series 03-1G Class A,
Variable Rate, 3 mo. LIBOR + .19%, 1.22%,
due 12/21/33 17,946,761
--------------
60,010,872
--------------
SMALL BUSINESS LOANS -- 0.8%
9,599,637 The Money Store Business Loan Backed Trust Series 99-1
Class AN, Variable Rate, 1 mo. LIBOR + .50%, 1.61%,
due 09/15/17 9,545,909
--------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
STUDENT LOANS -- 4.1%
2,066,997 Banc One Student Loan Trust Series 94-A Class A2,
Variable Rate, 1 mo. LIBOR + .30%, 1.41%,
due 10/25/16 2,069,024
9,600,000 Keycorp Student Loan Trust Series 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .73%, 1.84%,
due 11/25/21 9,588,480
8,000,000 Keycorp Student Loan Trust Series 95-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 1.86%,
due 10/27/21 7,992,800
4,772,800 SMS Student Loan Trust Series 94-A Certificates,
Variable Rate, 1 mo. LIBOR + .70%, 1.80%,
due 07/26/21 4,784,255
4,205,600 SMS Student Loan Trust Series 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75%, 1.86%,
due 10/25/23 4,212,329
1,310,098 SMS Student Loan Trust Series 94-B Class A2,
Variable Rate, 1 mo. LIBOR + .30%, 1.41%,
due 04/25/16 1,312,588
3,945,600 SMS Student Loan Trust Series 95-A Certificates,
Variable Rate, 1 mo. LIBOR + .65%, 1.76%,
due 04/25/25 3,951,518
12,977,619 SMS Student Loan Trust Series 97-A Class A,
Variable Rate, 3 mo. T-Bill + .60%, 1.60%,
due 10/27/25 12,965,939
2,802,762 Student Loan Marketing Association Series 96-4 Class
A2,
Variable Rate, 3 mo. U.S. Treasury Bill + .64%,
1.65%, due 07/25/09 2,788,748
--------------
49,665,681
--------------
TRANSPORTATION -- 1.8%
20,500,000 Westralia Airports Corp, 144A, 6.48%, due 04/01/10 22,531,550
--------------
Total Asset-Backed Securities 951,162,905
--------------
CORPORATE DEBT -- 2.2%
10,415,513 Continental Airlines Series 99-1A, 6.55%, due 02/02/19 9,686,427
16,000,000 General Motors Acceptance Corp, 7.50%, due 07/15/05 17,024,480
--------------
26,710,907
--------------
U.S. GOVERNMENT -- 10.1%
2,273,920 U.S. Treasury Inflation Indexed Note, 3.63%,
due 01/15/08 2,503,089
120,000,000 U.S. Treasury Note, 2.00%, due 11/30/04(b) 120,787,500
--------------
123,290,589
--------------
U.S. GOVERNMENT AGENCY -- 8.6%
1,050,000 Agency for International Development Floater (Support
of Belize), Variable Rate, 6 mo. U.S. Treasury
Bill + .50%, 1.55%, due 01/01/14 1,032,938
3,960,625 Agency for International Development Floater (Support
of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%,
1.46%, due 10/01/12 3,881,413
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY -- CONTINUED
1,702,619 Agency for International Development Floater (Support
of Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill x 117%,
1.06%, due 10/01/11 1,689,849
15,000,000 Agency for International Development Floater (Support
of India),
Variable Rate, 3 mo. LIBOR + .10%, 1.21%,
due 02/01/27 14,775,000
5,030,935 Agency for International Development Floater (Support
of Jamaica),
Variable Rate, 6 mo. U.S. Treasury Bill + .75%,
1.81%, due 03/30/19 5,005,781
20,000,000 Agency for International Development Floater (Support
of Morocco), Variable Rate, 6 mo. LIBOR - .015%,
1.18%, due 02/01/25 19,500,000
15,000,000 Agency for International Development Floater (Support
of Morocco),
Variable Rate, 6 mo. LIBOR + .15%, 1.35%,
due 10/29/26 14,981,250
1,288,921 Agency for International Development Floater (Support
of Morocco),
Variable Rate, 6 mo. U.S. Treasury Bill + .45%,
1.51%, due 11/15/14 1,266,364
625,895 Agency for International Development Floater (Support
of Peru), Series A, Variable Rate, 6 mo. U.S.
Treasury Bill + .35, 1.41%, due 05/01/14 622,766
1,776,730 Agency for International Development Floater (Support
of Peru), Series A, Variable Rate, 6 mo. U.S.
Treasury Bill + .35%, 1.41%, due 05/01/14 1,767,847
21,875,000 Agency for International Development Floater (Support
of Portugal),
Variable Rate, 6 mo. LIBOR, 1.12%, due 01/01/21 21,792,969
14,100,000 Agency for International Development Floater (Support
of Tunisia), Variable Rate, 6 mo. LIBOR, 1.19%,
due 07/01/23 13,835,625
1,416,667 Agency for International Development Floater (Support
of Zimbabwe), Variable Rate, 3 mo. U.S. Treasury Bill
x 115%, 1.06%, due 01/01/12 1,397,188
2,700,000 Federal Home Loan Bank,
Variable Rate, 3 mo. LIBOR + .25%, 1.55%,
due 11/05/03 2,696,625
1,392,472 Small Business Administration Series 95-10C Class 1,
6.88%, due 09/01/05 1,475,762
--------------
105,721,377
--------------
TOTAL DEBT OBLIGATIONS (COST $1,211,695,798) 1,206,885,778
--------------
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.0%
CASH EQUIVALENTS -- 4.0%
3,346,625 Dreyfus Money Market Fund(c) 3,346,625
$ 7,825,398 Harris Trust & Savings Bank Eurodollar Time Deposit,
1.05%, due 9/29/03(c) 7,825,398
38,507,930 Merrimac Cash Fund(c) 38,507,930
--------------
49,679,953
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $49,679,953) 49,679,953
--------------
TOTAL INVESTMENTS -- 102.5%
(Cost $1,261,375,751) 1,256,565,731
Other Assets and Liabilities (net) -- (2.5%) (31,040,696)
--------------
TOTAL NET ASSETS -- 100.0% $1,225,525,035
==============
NOTES TO THE SCHEDULE OF INVESTMENTS:
</Table>
144A - Securities exempt from registration under rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional investors.
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
CBO - Collateralized Bond Obligation
CDO - Collateralized Debt Obligation
EMTN - Euromarket Medium Term Note
FGIC - Insured as to the payment of principal and interest by Financial
Guaranty Insurance Corporation
GBP - British Pound
MBIA - Insured as to the payment of principal and interest by MBIA Insurance
Corp
(a) All or a portion of this security has been segregated to cover
collateral requirements on reverse repurchase agreements (Note 6).
(b) All or a portion of this security is held as collateral for open swap
contracts (Note 6).
(c) All or a portion of this security represents investment of security
lending collateral (Note 1).
See accompanying notes to the financial statements. 7
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$12,600,000 (cost $1,261,375,751) (Note 1) $1,256,565,731
Foreign currency, at value (cost $298,305) (Note 1) 300,012
Receivable for Fund shares sold 3,500,000
Interest receivable 3,557,976
Receivable for closed forward foreign currency contracts
(Note 1) 3,712,095
Receivable for expenses reimbursed by Manager (Note 2) 21,948
--------------
Total assets 1,267,657,762
--------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 14,400,000
Payable for Fund shares repurchased 3,050,000
Payable for open forward foreign currency contracts
(Notes 1 and 6) 362,202
Net payable for open swap contracts (Notes 1 and 6) 9,497,307
Payable for reverse repurchase agreements (Notes 1 and 6) 14,708,841
Accrued expenses 114,377
--------------
Total liabilities 42,132,727
--------------
NET ASSETS $1,225,525,035
==============
NET ASSETS CONSIST OF:
Paid-in capital $1,215,760,212
Accumulated undistributed net investment income 9,468,674
Accumulated net realized gain 1,562,249
Net unrealized depreciation (1,266,100)
--------------
$1,225,525,035
==============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $1,225,525,035
==============
SHARES OUTSTANDING:
Class III 48,606,044
==============
NET ASSET VALUE PER SHARE:
Class III $ 25.21
==============
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest (including securities lending income of $6,566) $11,042,748
-----------
Total income 11,042,748
-----------
EXPENSES:
Custodian and transfer agent fees 72,050
Legal fees 29,440
Audit fees 28,888
Interest expense (Notes 1 and 6) 15,020
Trustees fees and related expenses (Note 2) 13,691
Miscellaneous 9,660
Fees reimbursed by Manager (Note 2) (133,178)
-----------
Net expenses 35,571
-----------
Net investment income 11,007,177
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (742,338)
Closed swap contracts 544,495
Foreign currency, forward contracts and foreign
currency related transactions 1,763,995
-----------
Net realized gain 1,566,152
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (4,916,759)
Open swap contracts 7,180,996
Foreign currency, forward contracts and foreign
currency related transactions (1,136,220)
-----------
Net unrealized gain 1,128,017
-----------
Net realized and unrealized gain 2,694,169
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,701,346
===========
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
NOVEMBER 26, 2002
SIX MONTHS ENDED (COMMENCEMENT
AUGUST 31, 2003 OF OPERATIONS) THROUGH
(UNAUDITED) FEBRUARY 28, 2003
---------------- ----------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 11,007,177 $ 6,530,365
Net realized gain (loss) 1,566,152 (1,220,679)
Change in net unrealized appreciation (depreciation) 1,128,017 (2,394,117)
-------------- --------------
Net increase in net assets from operations 13,701,346 2,915,569
-------------- --------------
Distributions to shareholders from:
Net investment income
Class III (4,642,345) (2,209,747)
-------------- --------------
Total distributions from net investment income (4,642,345) (2,209,747)
-------------- --------------
Net share transactions (Note 5):
Class III 69,512,345 1,146,247,867
-------------- --------------
Increase in net assets resulting from net share
transactions 69,512,345 1,146,247,867
-------------- --------------
Total increase in net assets 78,571,346 1,146,953,689
NET ASSETS:
Beginning of period 1,146,953,689 --
-------------- --------------
End of period (including accumulated undistributed
net investment income of $9,468,674 and $3,103,842,
respectively) $1,225,525,035 $1,146,953,689
============== ==============
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
NOVEMBER 26, 2002
SIX MONTHS ENDED (COMMENCEMENT
AUGUST 31, 2003 OF OPERATIONS) THROUGH
(UNAUDITED) FEBRUARY 28, 2003
---------------- ----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 25.01 $ 25.00
---------- ----------
Income from investment operations:
Net investment income 0.23 0.15
Net realized and unrealized gain (loss) 0.07 (0.09)
---------- ----------
Total from investment operations 0.30 0.06
---------- ----------
Less distributions to shareholders:
From net investment income (0.10) (0.05)
---------- ----------
Total distributions (0.10) (0.05)
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 25.21 $ 25.01
========== ==========
TOTAL RETURN(a) 1.19%+ 0.24%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $1,225,525 $1,146,954
Net operating expenses to average daily net assets 0.01%* 0.00%*
Interest expense to average daily net assets 0.00%*(b) --
Total net expenses to average daily net assets 0.01%* 0.00%*
Net investment income to average daily net assets 1.88%* 2.34%*
Portfolio turnover rate 14%+ 15%+
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.02%* 0.05%*
</Table>
(a) The total returns would have been lower had certain expenses not been
reimbursed during the period shown.
(b) Interest expense was less than 0.01%.
* Annualized.
+ Not Annualized.
See accompanying notes to the financial statements. 11
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Short-Duration Collateral Fund (the "Fund"), which commenced
operations on November 26, 2002, is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund seeks total return in excess of its benchmark. The Fund seeks to
achieve its objective by investing primarily in relatively high quality,
low volatility fixed income instruments. The Fund's benchmark index is the
J.P. Morgan U.S. 3-Month Cash Index.
Shares of the Fund are only offered to other Funds of the Trust and other
GMO separately managed accounts.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates fair value. Shares of mutual funds are
valued at their net asset value as reported on each business day.
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.
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
12
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. At August 31, 2003, the total value of these securities
represented 39% of net assets.
Certain securities held by the underlying funds in which the Fund invests,
were valued on the basis of a price provided by a principal market maker.
The prices provided by the principal market makers may differ from the
value that would be realized if the securities were sold and the
differences could be material to the financial statements. At August 31,
2003, the total value of these securities represented 39% of net assets.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into
13
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 and represents the currency exposure the Fund has acquired or
hedged through forward currency contracts as of August 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. At August 31,
2003, the Fund held no open futures contracts.
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
14
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
unfavorable change in the price of the future, security or currency
underlying the written option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
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 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.
15
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. The Fund also may enter into structured warrants, which are
derivatives like swaps and have risks similar to swaps. 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 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 6 for a summary of open
swap agreements as of August 31, 2003.
16
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults or enters
into insolvency proceedings and the value of the collateral declines,
recovery of cash by the Fund may be delayed or limited.
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. The market value of the securities the Fund has sold is
determined daily and any additional required collateral is allocated to or
sent by the fund on the next business day. At August 31, 2003, the Fund
entered into a reverse repurchase agreement having a market value of
$14,708,841, collateralized by a security with a market value of
$14,953,125. See Note 6 for a summary of open reverse repurchase
agreements as of August 31, 2003.
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 investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund loaned securities having a market
value of $12,600,000 collateralized by cash in the amount of $14,400,000,
which was invested in short-term instruments.
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
17
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. Generally,
no provision for U.S. federal income or excise tax is necessary. Taxes on
foreign dividend and interest 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
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 the accrual basis and is adjusted for the amortization of
premiums and discounts. Dividend income is recorded on the ex-dividend
date. Non-cash dividends, if any, are recorded at the fair market value of
the securities received. Interest income on U.S. Treasury inflation
indexed securities is accrued daily based upon the inflation adjusted
principal. Additionally, any increase in the principal or face amount of
the securities adjusted for inflation is recorded as interest income. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO does not charge the Fund any management or service fees for its
services. In addition, effective until at least June 30, 2004, 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 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).
18
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $9,643. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
For the six months ended August 31, 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 $ 50,527,344 $ 30,229,688
Investments (non-U.S. Government securities) 269,461,996 130,990,010
</Table>
At August 31, 2003, the approximate 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
-------------- ---------------- ---------------- --------------
$1,261,379,654 $5,163,984 $(9,977,907) $(4,813,923)
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 75.1% of the outstanding shares of the Fund were held
by five shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Two of the shareholders are other funds of GMO Trust.
Investment activities of these shareholders may have a material effect on
the Fund.
19
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Period from
November 26, 2002
Six Months Ended (commencement of
August 31, 2003 operations) through
(Unaudited) February 28, 2003(a)
-------------------------- --------------------------
Shares Amount Shares Amount
Class III: ----------- ------------- ---------- --------------
Shares sold 16,275,997 $ 409,505,000 52,023,171 $1,300,562,382
Shares issued to shareholders in reinvestment
of distributions 184,733 4,642,345 88,709 2,209,747
Shares repurchased (13,706,342) (344,635,000) (6,260,224) (156,524,262)
----------- ------------- ---------- --------------
Net increase 2,754,388 $ 69,512,345 45,851,656 $1,146,247,867
=========== ============= ========== ==============
</Table>
(a) The Fund was formed with an initial taxable contribution of securities
(including derivative instruments) in-kind, which had a market value of
$1,024,462,382 on the date of contribution.
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Settlement Units
Date Deliver of Currency Value Depreciation
---------- -------------------- ------------ ----------- ------------
Sales
11/06/03 GBP 46,500,000 $73,228,632 $(362,202)
</Table>
20
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
REVERSE REPURCHASE AGREEMENT
<Table>
<Caption>
Face Value Description Market Value
----------- ------------------------------------------------------- ------------
$14,708,841 Barclays Bank, 1.11%, dated 9/16/03, to be repurchased
on demand, at face value, plus accrued interest. $14,708,841
===========
</Table>
<Table>
Average balance outstanding $14,708,841
Average interest rate 1.11%
Maximum balance outstanding $14,708,841
Average shares outstanding 46,252,157
Average balance per share outstanding $.32
</Table>
Average balance outstanding was calculated based on daily balances
outstanding during the period that the Fund had entered into reverse
repurchase agreements.
SWAP AGREEMENTS
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
---------------- ---------- -------------------------------------------------- --------------
INTEREST RATE SWAPS
100,000,000 USD 1/18/06 Agreement with Goldman Sachs International dated $ 858,826*
1/16/01 to pay the notional amount multiplied by
5.82% and to receive the notional amount
multiplied by the 3 month Floating Rate LIBOR
adjusted by a specified spread.
50,000,000 USD 1/09/08 Agreement with JP Morgan Chase Bank dated 1/07/03 411,006
to pay the notional amount multiplied by 3.43375%
and to receive the notional amount multiplied by
the 3 month Floating Rate LIBOR adjusted by a
specified spread.
</Table>
21
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
---------------- ---------- -------------------------------------------------- --------------
INTEREST RATE SWAPS -- CONTINUED
35,000,000 USD 3/04/08 Agreement with JP Morgan Chase Bank dated 2/28/03 $ 900,042
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.
40,000,000 USD 1/24/11 Agreement with Goldman Sachs International dated 1,013,098*
1/19/01 to pay the notional amount multiplied by
6.0675% and to receive the notional amount
multiplied by the 3 month Floating Rate LIBOR
adjusted by a specified spread.
26,700,000 USD 2/25/13 Agreement with Bank of America N.A. dated 2/20/03 1,320,025
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
35,000,000 USD 9/01/03 Agreement with Lehman Brothers Special Financing 149,042
Inc. dated 2/25/03 to receive (pay) the notional
amount multiplied by the return on the Lehman
Brothers AAA CMBS Index and to pay initial market
value multiplied by the 1 month LIBOR adjusted by
a specified spread.
</Table>
22
<Page>
GMO SHORT-DURATION COLLATERAL FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
---------------- ---------- -------------------------------------------------- --------------
TOTAL RETURN SWAPS -- CONTINUED
35,000,000 USD 10/22/03 Agreement with Bank of America N.A. dated 4/15/03 $ (727,774)
to receive (pay) the notional amount multiplied by
the return on the Banc of America Securities LLC
AAA 10 year CMBS Daily Index and to pay initial
market value multiplied by the 6 month LIBOR
adjusted by a specified spread.
15,000,000 USD 12/31/03 Agreement with Deutsche Bank AG dated 8/26/03 to --
receive (pay) the notional amount multiplied by
the return on the Lehman Brothers CMBS Index and
to pay initial market value multiplied by the 1
month LIBOR adjusted by a specified spread.
20,000,000 USD 1/01/04 Agreement with Lehman Brothers Special Financing --
Inc. dated 8/26/03 to receive (pay) the notional
amount multiplied by the return on the Lehman
Brothers CMBS AAA Index and to pay initial market
value multiplied by the 1 month LIBOR adjusted by
a specified spread.
----------
$3,924,265
==========
</Table>
* Includes unrealized gain (loss) of $13,421,572 incurred by GMO Alpha
LIBOR Fund prior conversion to the Fund on November 27, 2002.
See Notes to Schedule of Investments for definitions of currency
abbreviations.
23
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.4%
UNITED STATES -- 100.4%
1,416,005 GMO International Growth Fund, Class III 27,371,377
1,967,480 GMO International Intrinsic Value Fund, Class IV 38,779,027
-------------
66,150,404
-------------
TOTAL MUTUAL FUNDS (COST $61,610,623) 66,150,404
-------------
COMMON STOCKS -- 0.0%
HONG KONG -- 0.0%
796 China Digicontent Co Ltd*(a) 1
-------------
UNITED KINGDOM -- 0.0%
19,018 British Energy Plc (Deferred Shares)*(a) --
-------------
TOTAL COMMON STOCKS (COST $19) 1
-------------
SHORT-TERM INVESTMENTS -- 0.6%
CASH EQUIVALENTS -- 0.6%
400,000 ING Bank Time Deposit, 1.08%, due 9/02/03 400,000
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $400,000) 400,000
-------------
TOTAL INVESTMENTS -- 101.0%
(Cost $62,010,642) 66,550,405
Other Assets and Liabilities (net) -- (1.0%) (676,506)
-------------
TOTAL NET ASSETS -- 100.0% $ 65,873,899
=============
NOTES TO SCHEDULE OF INVESTMENTS:
</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).
See accompanying notes to the financial statements. 1
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $62,010,642) (Note 1) $66,550,405
Cash 34,946
Foreign currency, at value (cost $39,410) (Note 1) 39,151
Receivable for Fund shares sold 1,100,000
Foreign taxes receivable 402
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 6,826,995
Receivable for closed forward foreign currency contracts
(Notes 1) 522,850
Receivable for expenses reimbursed by Manager (Note 2) 47,300
-----------
Total assets 75,122,049
-----------
LIABILITIES:
Payable for investments purchased 1,600,000
Payable to affiliate for (Note 2):
Management fee 28,013
Shareholder service fee 7,781
Payable for open forward foreign currency contracts
(Notes 1 and 6) 7,560,283
Accrued expenses 52,073
-----------
Total liabilities 9,248,150
-----------
NET ASSETS $65,873,899
===========
NET ASSETS CONSIST OF:
Paid-in capital $67,536,295
Accumulated undistributed net investment income 520,338
Accumulated net realized loss (5,989,100)
Net unrealized appreciation 3,806,366
-----------
$65,873,899
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $65,873,899
===========
SHARES OUTSTANDING:
Class III 10,148,428
===========
NET ASSET VALUE PER SHARE:
Class III $ 6.49
===========
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $47) $ 13,545
Interest 7,590
Dividends from investment company shares 236,517
----------
Total income 257,652
----------
EXPENSES:
Management fee (Note 2) 121,529
Custodian fees 36,270
Audit fees 22,080
Transfer agent fees 14,720
Registration fees 2,208
Legal fees 644
Trustees fees and related expenses (Note 2) 398
Miscellaneous 276
Fees reimbursed by Manager (Note 2) (76,198)
----------
121,927
Indirectly incurred fees waived or borne by Manager (Note
2) (120,505)
----------
1,422
----------
Shareholder service fee (Note 2) - Class III 33,758
Shareholder service fee waived (Note 2) - Class III (25,469)
8,289
----------
Net expenses 9,711
----------
Net investment income 247,941
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on:
Investments (11,426)
Foreign currency, forward contracts and foreign
currency related transactions (779,789)
----------
Net realized loss (791,215)
----------
Change in net unrealized appreciation (depreciation) on:
Investments 7,183,517
Foreign currency, forward contracts and foreign
currency related transactions 281,340
----------
Net unrealized gain 7,464,857
----------
Net realized and unrealized gain 6,673,642
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,921,583
==========
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 247,941 $ 717,092
Net realized loss (791,215) (3,959,072)
Change in net unrealized appreciation (depreciation) 7,464,857 289,156
----------- -----------
Net increase (decrease) in net assets from
operations 6,921,583 (2,952,824)
----------- -----------
Distributions to shareholders from:
Net investment income
Class III -- (1,412,055)
----------- -----------
Net share transactions (Note 5):
Class III 30,029,551 (4,293,820)
----------- -----------
Net increase (decrease) in net assets resulting from
Fund share transactions 30,029,551 (4,293,820)
----------- -----------
Total increase (decrease) in net assets 36,951,134 (8,658,699)
NET ASSETS:
Beginning of period 28,922,765 37,581,464
----------- -----------
End of period (including accumulated undistributed
net investment income of $520,338 and $272,397,
respectively) $65,873,899 $28,922,765
=========== ===========
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.54 $ 7.14 $ 9.25 $ 10.04 $ 9.28 $ 11.92
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income(e) 0.03(d) 0.22(d) 0.46(d) 0.23 0.23 0.23
Net realized and unrealized gain
(loss) 0.92 (1.55) (1.00) 1.34 1.26 (0.36)(b)
------- ------- ------- ------- ------- -------
Total from investment operations 0.95 (1.33) (0.54) 1.57 1.49 (0.13)
------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income -- (0.27) (1.53) (0.21) (0.42) (0.29)
From net realized gains -- -- (0.04) (2.15) (0.31) (2.22)
------- ------- ------- ------- ------- -------
Total distributions -- (0.27) (1.57) (2.36) (0.73) (2.51)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 6.49 $ 5.54 $ 7.14 $ 9.25 $ 10.04 $ 9.28
======= ======= ======= ======= ======= =======
TOTAL RETURN(a) 17.15%** (19.53)% (5.38)% 16.69% 15.86% (1.84)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $65,874 $28,923 $37,581 $49,332 $75,054 $97,450
Net expenses to average daily net
assets 0.04%*(c) 0.06%(c) 0.31%(c) 0.69% 0.69% 0.69%
Net investment income to average
daily net assets 1.10%*(d) 3.32%(d) 5.33%(d) 2.23% 2.25% 2.07%
Portfolio turnover rate 1%** 90% 120% 39% 68% 68%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.99%* 1.32% 0.79% 0.38% 0.33% 0.42%
</Table>
* Annualized.
** Not Annualized.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain (loss) on investments for the
year ended February 28, 1999 due to timing purchases and redemptions of
Fund shares in relation to fluctuating market values of the investments
of the Fund.
(c) On July 3, 2001, the Fund began to invest a substantial portion of its
assets in other funds of GMO Trust and revised its reimbursement. Net
expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 2.
(d) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund
invests.
(e) Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 5
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Currency Hedged International Equity Fund (the "Fund") is a series of
GMO Trust (the "Trust"). The Fund is registered under the Investment
Company Act of 1940, as amended, as an open-end, non-diversified
management investment company. The Fund is advised and managed by
Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust
was established as a Massachusetts business trust under the laws of the
Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust
permits the Trustees to create an unlimited number of series ("Funds"),
each of which issues a separate series of shares, and to subdivide a
series of shares into classes.
The Fund seeks high total return through investment in other GMO Funds,
including International Disciplined Equity Fund, International Intrinsic
Value Fund, and International Growth Fund and through management of the
Fund's foreign currency positions. The Fund's benchmark is the MSCI EAFE
Index (Europe, Australasia, Far East) (Hedged).
At August 31, 2003, 58.9% of the Fund's net assets was invested in GMO
International Intrinsic Value Fund and 41.5% of the Fund's net assets was
invested in GMO International Growth Fund, separate funds of GMO Trust
managed by GMO. GMO International Intrinsic Value Fund and GMO
International Growth Fund invest primarily in equity securities of
developed countries in Asia and Europe. The financial statements of GMO
International Intrinsic Value Fund and GMO International Growth Fund
should be read in conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of other funds of the Trust ("underlying funds") and other mutual
funds are valued at their net asset value as
6
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
reported on each business day. 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.
Certain investments in securities held by the underlying funds were valued
on the basis of a price provided by a principal market maker. The prices
provided by the principal market makers may differ from the value that
would be realized if the securities were sold and the differences could be
material to the financial statements.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the counterparties are unable to meet the terms of the
contracts or if there are movements in foreign
7
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 and
represents the currency exposure the Fund has acquired or hedged through
currency contracts as of August 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. As of
August 31, 2003, there were no outstanding futures contracts.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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
8
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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
closed are offset against the proceeds on the closing transaction to
determine the realized gain or loss. The risk associated with purchasing
put and call options is limited to the premium paid. At August 31, 2003,
there were no open purchased option contracts.
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.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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
9
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
disagree as to the meaning of contractual terms in the agreements, or that
there may be unfavorable changes in the price of the security or index
underlying these transactions. At August 31, 2003, there were no open swap
agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund did not have any 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 carryover for
U.S. federal income tax purposes. Therefore, no provision for U.S. federal
income or excise tax is necessary. Taxes on foreign interest and dividend
income 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
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.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code of $3,271,105 and $1,682,281 expiring in 2010 and 2011, respectively.
The Fund has elected to defer to March 1, 2003 post-October capital losses
of $724,869.
10
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the
amortization of premiums and discounts. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. Dividends
representing a return of capital are reflected as a reduction of coat,
when the amount of the return of capital is conclusively determined. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .54% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares. As described in Note 1, the Fund invests in certain underlying
funds. Like the management fee (as described below), the Fund's
shareholder service fee will be waived (but not below zero) to the extent
of the indirect shareholder service fees paid in connection with the
Fund's investment in shares of the underlying funds. For the six months
ended August 31, 2003, shareholder service fees incurred indirectly by the
Class III shares of the Fund were .113% (annualized) of the Fund's average
daily net assets.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees and the
following expenses: fees and expenses of the independent Trustees of the
Trust
11
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
(including legal fees), brokerage commissions and other investment-related
costs, hedging transaction fees, extraordinary, non-recurring and certain
other unusual expenses (including taxes), securities lending fees and
expenses, interest expense and transfer taxes (collectively, "fund
expenses")) plus the amount of fees and expenses (excluding shareholder
service fees and fund expenses, as defined above) incurred indirectly by
the Fund through its investment in the underlying funds, exceed the
management fee. Because GMO will not reimburse expenses incurred
indirectly by the Fund to the extent they exceed .54%, and because the
amount of fees and expenses incurred indirectly by the Fund will vary, the
operating expenses (excluding shareholder service fees and fund expenses,
as defined above) incurred indirectly by the Fund through its investment
in the underlying funds may exceed .54% of the Fund's average daily net
assets. For the six months ended August 31, 2003 indirect operating
expenses (excluding shareholder service fees and investment-related
expense) and indirect investment-related expenses (including, but not
limited to interest expense, foreign audit expense, and investment-related
legal expense) incurred by the Fund were .539% (annualized) and .000%
(annualized) of the Fund's average daily net assets, respectively.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $306. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, substantially all of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $30,664,117 and $650,000, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$62,243,755 $4,306,668 $(18) $4,306,650
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 87.4% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the outstanding
shares of the Fund. One of the shareholders is another fund of GMO Trust.
Investment activities of these shareholders may have a material effect on
the Fund.
12
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
----------------------- ------------------------
Shares Amount Shares Amount
Class III: ---------- ----------- ---------- ------------
Shares sold 6,151,718 $37,526,865 2,882,019 $ 16,484,193
Shares issued to shareholders in reinvestment
of distributions -- -- 189,880 1,365,235
Shares repurchased (1,221,655) (7,497,314) (3,118,860) (22,143,248)
---------- ----------- ---------- ------------
Net increase 4,930,063 $30,029,551 (46,961) $ (4,293,820)
========== =========== ========== ============
</Table>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- -------------- ----------- --------------
Buys
10/31/03 AUD 9,230,475 $ 5,938,371 $ 296,189
10/31/03 CAD 12,032,126 8,648,859 433,863
9/26/03 CHF 15,763,711 11,261,841 (173,682)
9/26/03 DKK 44,667,035 6,599,574 245,596
9/26/03 EUR 95,178,407 104,427,432 3,758,502
9/26/03 GBP 22,401,031 35,377,438 533,271
10/31/03 HKD 175,102,510 22,450,632 40,074
10/31/03 JPY 4,462,195,604 38,317,660 743,845
9/26/03 NOK 191,713,064 25,543,638 (137,904)
10/31/03 NZD 16,025,052 9,188,177 390,423
9/26/03 SEK 23,814,926 2,845,019 120,338
10/31/03 SGD 2,900,480 1,655,219 14,462
-----------
$ 6,264,977
===========
</Table>
13
<Page>
GMO CURRENCY HEDGED INTERNATIONAL EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- -------------- ----------- --------------
Sales
10/31/03 AUD 12,984,759 $ 8,353,667 $ (420,392)
10/31/03 CAD 12,108,348 8,703,648 (431,086)
9/26/03 CHF 21,577,416 15,415,243 250,432
9/26/03 DKK 51,638,318 7,629,584 (217,949)
9/26/03 EUR 110,170,730 120,876,641 (3,764,225)
9/26/03 GBP 32,099,075 50,693,333 (679,913)
10/31/03 HKD 179,691,656 23,039,026 (41,631)
10/31/03 JPY 6,012,659,555 51,631,768 (1,072,821)
9/26/03 NOK 196,357,686 26,162,483 (103,272)
10/31/03 NZD 16,826,938 9,647,949 (403,607)
9/26/03 SEK 31,108,540 3,716,342 (109,224)
10/31/03 SGD 3,030,194 1,729,242 (4,577)
-----------
$(6,998,265)
===========
</Table>
CURRENCY ABBREVIATIONS:
<Table>
AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
DKK - Danish Krona
EUR - Euro
GBP - British Pound
HKD - Hong Kong Dollar
JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollar
SEK - Swedish Krona
SGD - Singapore Dollar
</Table>
14
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
COMMON STOCKS -- 94.1%
AUSTRALIA -- 3.3%
544,993 Australia and New Zealand Banking Group Ltd 6,180,123
417,234 Boral Ltd 1,439,392
450,834 Caltex Australia Ltd 1,056,324
1,655,325 General Property Trust Units 2,989,231
926,429 National Australia Bank Ltd 18,642,533
1,200 National Australia Bank Ltd ADR 121,320
247,829 QBE Insurance Group Ltd 1,573,596
707,712 Santos Ltd 2,675,109
915,879 Stockland Trust Group Units 2,898,805
1,161,515 Telstra Corp Ltd 3,773,989
1,612,968 Westfield Trust Units 3,445,179
557,701 Westpac Banking Corp 5,649,211
502,216 Woodside Petroleum Ltd 4,339,542
--------------
54,784,354
--------------
AUSTRIA -- 3.7%
140,909 Austrian Airlines* 988,558
17,701 Bau Holdings AG 1,360,375
127,839 Boehler Uddeholm (Bearer) 6,752,452
71,009 Brau Union AG 9,752,894
20,650 Erste Bank Der Oesterreichischen Sparkassen AG 1,902,150
86,357 Flughafen Wien AG 3,216,949
70,363 Generali Holding Vienna AG 1,661,681
42,359 Mayr-Melnhof Karton AG (Bearer) 3,618,163
37,177 Oesterreichische Brau Beteiligungs AG 4,979,629
114,363 OMV AG 13,436,083
176,031 RHI AG* 2,346,230
81,913 VA Technologie AG (Bearer)* 2,302,266
164,338 Voestalpine AG 6,399,735
119,620 Wienerberger AG 2,278,589
--------------
60,995,754
--------------
BELGIUM -- 2.5%
155,826 Almanij NV 6,280,397
23,648 Bekaert SA 1,134,849
85,252 Delhaize Group 3,304,951
33,111 Electrabel SA 8,302,926
633,963 Fortis, Class B 10,656,188
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
BELGIUM -- CONTINUED
291,623 KBC Bankverzekeringsholdings 11,340,524
--------------
41,019,835
--------------
CANADA -- 2.7%
280,500 Bank of Nova Scotia 12,444,199
130,800 BCE Inc 2,831,651
75,900 Canadian Imperial Bank of Commerce 3,105,162
57,400 Canadian Natural Resources 2,223,337
269,700 EnCana Corp 10,098,560
27,400 Magna International Inc 2,006,680
13,700 MI Developments Inc* 272,588
144,900 National Bank of Canada 3,661,280
97,000 Quebecor Inc* 1,324,428
115,500 Royal Bank of Canada 4,961,716
90,200 TELUS Corp 1,541,102
--------------
44,470,703
--------------
FINLAND -- 1.0%
53,700 Finnair, Class A 278,868
598,600 Fortum Oyj 4,850,158
150,400 Kesko Oyj 1,943,511
98,554 Rautaruukki Oyj* 517,208
594,900 Sampo Oyj 4,585,048
38,100 Stockmann Oyj AB, Class A 665,933
24,100 Stockmann Oyj AB, Class B 419,911
130,200 UPM-Kymmene Oyj 2,358,619
23,400 Wartsila Oyj ABP 326,274
--------------
15,945,530
--------------
FRANCE -- 4.2%
433,119 Alcatel SA* 4,707,661
38,037 Assurances Generales de France 1,708,853
347,699 BNP Paribas 17,323,304
33,896 Bongrain SA 1,466,620
188,174 Cie de Saint-Gobain 7,352,760
79,281 Credit Agricole SA 1,505,837
45,941 Eurazeo 2,365,571
515,569 France Telecom SA* 12,792,576
5,470 Fromageries Bel Vache qui Rit 648,595
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
FRANCE -- CONTINUED
6,821 Imerys SA 1,124,065
279,109 Societe Generale, Class A 18,508,600
--------------
69,504,442
--------------
GERMANY -- 7.3%
167,700 Bankgesellschaft Berlin AG* 406,900
50,184 BASF AG 2,330,604
313,999 Bayer AG 6,729,315
145,634 Bewag AG, Class A 2,318,428
184,849 Commerzbank AG 2,587,558
150,256 Continental AG 3,868,454
685,735 DaimlerChrysler AG (Registered) 26,335,339
13,893 Degussa AG 399,632
151,473 Deutsche Post AG 2,394,752
1,251,651 Deutsche Telekom* 17,933,149
42,800 Douglas Holdings AG 1,048,819
572,494 E. On AG 29,541,435
61,767 HeidelbergCement AG* 2,197,173
40,213 Metro AG 1,445,908
55,080 Schwarz Pharma AG 1,318,297
49,723 Sudzucker AG 777,920
417,908 ThyssenKrupp AG 5,657,265
246,532 Volkswagen AG 12,098,836
--------------
119,389,784
--------------
GREECE -- 0.0%
33,764 Alpha Bank A.E. 704,320
--------------
HONG KONG -- 2.6%
539,000 Cheung Kong Infrastructure Holdings Ltd 1,116,099
1,408,598 CLP Holdings Ltd 6,212,796
623,409 Great Eagle Holdings Ltd 591,489
209,000 Guoco Group 1,366,652
2,153,511 Hang Lung Group Co Ltd 2,208,913
114,900 Hang Seng Bank Ltd 1,270,635
962,700 Hong Kong Aircraft Engineering Co Ltd 3,499,336
2,132,469 Hong Kong Electric Holdings Ltd 8,421,220
515,700 Hong Kong Ferry Co Ltd 419,868
1,000 Hong Kong Land Holdings 1,340
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
HONG KONG -- CONTINUED
660,000 Hutchison Whampoa Ltd 4,865,790
614,962 Jardine Matheson Holdings Ltd 4,366,230
1,326,411 Jardine Strategic Holdings Ltd 4,509,797
1,592,862 Mandarin Oriental* 796,431
890,400 Yue Yuen Industrial Holdings 2,648,590
--------------
42,295,186
--------------
IRELAND -- 0.6%
348,691 Allied Irish Banks Plc 4,896,368
348,511 Bank of Ireland 4,143,885
--------------
9,040,253
--------------
ITALY -- 4.0%
1,941,352 Banca Intesa SPA 5,829,407
991,673 Banca Intesa SPA (Savings Shares) 2,215,622
611,862 Banca Nazionale Del Lavoro SPA* 951,889
1,069,100 Banca Popolare di Milano 4,894,600
279,686 Banche Popolari Unite Scrl* 4,265,164
926,742 Enel SPA 5,646,959
1,721,441 ENI-Ente Nazionale Idrocarburi SPA 26,005,988
134,676 Fiat SPA (Savings Shares)* 567,785
128,320 Fondiaria - SAI 1,090,431
588,000 Grassetto SPA*(a)(b) 6,456
484,630 IFIL Finanziaria di Partecipazioni SPA* 1,226,434
153,302 Italcementi SPA 1,050,256
29,437 Italmobiliare SPA 1,260,436
49,200 Natuzzi SPA ADR 475,272
955,550 Parmalat Finanziaria SPA 3,089,595
245,795 RAS SPA 3,535,144
191,928 Sanpaolo IMI SPA 1,843,780
982,472 SMI (Societa Metallurgica Italy) 337,619
707,426 Telecom Italia SPA* 1,662,102
--------------
65,954,939
--------------
JAPAN -- 22.9%
142,130 Acom Co Ltd 5,895,691
658,000 Asahi Kasei Corp 2,492,595
480,000 Ashikaga Financial Group Inc* 526,568
45,800 Autobacs Seven 873,372
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
JAPAN -- CONTINUED
72,000 Best Denki Co Ltd 250,531
244,000 Canon Sales Co Inc 1,869,523
269,000 Casio Computer Co Ltd 2,086,433
244,500 Chubu Electric Power Co Inc 4,452,884
53,000 Chudenko Corp 654,097
192,700 Chugoku Electric Power Co Inc 2,972,746
1,493,000 Cosmo Oil Co Ltd 2,623,114
306,000 Dai Nippon Printing Co Ltd 3,899,743
219,000 Daicel Chemical Industries Ltd 891,541
665,000 Daido Steel Co Ltd 1,345,046
230,000 Daiichi Pharmaceuticals Co Ltd 3,516,627
101,000 Daio Paper Corp 811,947
125,500 Daito Trust Construction Co Ltd 3,377,357
873,000 Daiwa House Industry Co Ltd 6,801,140
192,000 Daiwa Kosho Lease Co Ltd 511,759
141,000 Denso Corp 2,634,385
672 East Japan Railway Co 2,839,356
271,000 Ezaki Glico Co Ltd 1,616,524
51,400 FamilyMart 1,026,414
71,000 Fast Retailing Co Ltd 2,951,234
853,000 Fuji Heavy Industries Ltd 4,203,591
101,400 Fuji Photo Film Co Ltd 3,041,652
189,000 Fukuyama Transporting Co Ltd 639,827
853,000 Furukawa Electric Co Ltd 3,099,691
155,000 Gunze Ltd 629,671
38,200 Heiwa Corp 559,839
474,000 Hino Motors 2,372,437
106,000 Hitachi Kokusai Electric Inc 535,087
203,300 Hokkaido Electric Power 3,049,152
209,000 House Foods Corp 1,941,687
316,000 Isuzu Motors Ltd* 584,985
1,558,000 Itochu Corp 4,673,466
226,000 Itoham Foods Inc 861,930
29,000 Japan Airport Terminal Co Ltd 170,252
199,000 Japan Securities Finance Co 919,275
454 Japan Tobacco Inc 2,653,651
247,675 JFE Holdings Inc 4,988,312
1,392,000 Kajima Corp 3,805,691
336,000 Kamigumi Co Ltd 1,932,259
242,000 Kandenko Co 823,397
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
JAPAN -- CONTINUED
429,700 Kansai Electric Power Co Inc 6,779,891
137,000 Kao Corp 2,583,133
2,643,000 Kawasaki Heavy Industries Ltd 3,352,451
1,004,000 Kawasaki Kisen Kaisha Ltd 3,424,683
809 KDDI Corp 4,139,296
159,000 Kinden Corp 587,324
835,000 Kirin Brewery Co Ltd 5,975,531
159,000 Kissei Pharmaceutical Co Ltd 2,089,021
5,044,000 Kobe Steel Ltd* 5,879,191
79,600 Konami Corp 1,763,507
268,000 Kyushu Electric Power Co Inc 4,058,588
125,700 Lopro Corp* 565,585
465,000 Maeda Corp 1,526,354
132,000 Maeda Road Construction 655,022
159,000 Makita Corp 1,432,199
53,000 Maruichi Steel Tube 570,063
1,413,000 Mazda Motor Corp 3,717,784
1,571,000 Mitsubishi Electric Corp 6,449,340
2,451,000 Mitsubishi Materials Corp* 3,655,074
1,205,000 Mitsubishi Motors Corp* 2,623,157
1 Mitsubishi Tokyo Finance Group Inc 1,166
396,000 Mitsui Chemicals Inc 2,121,186
928,000 Mitsui OSK Lines Ltd 3,221,118
9,579 Mizuho Financial Group Inc* 11,903,968
4,161,000 Mizuho Trust & Banking Co Ltd* 5,313,584
79,000 Nagase & Co 456,342
405,000 NEC Corp* 3,019,798
682,000 Nippon Express Co Ltd 2,793,932
113,000 Nippon Hodo Co 522,969
1,221,000 Nippon Light Metal 2,344,052
86,000 Nippon Meat Packers Inc 829,928
1,017,000 Nippon Shinpan Co 1,638,636
621,000 Nippon Suisan Kaisha Ltd 1,426,363
2,014 Nippon Telegraph & Telephone Corp 8,872,095
1 Nippon Unipac Holding 1,831
382,000 Nippon Yusen Kabushiki Kaisha 1,578,025
597,000 Nishimatsu Construction 1,882,893
828,000 Nissan Motor Co 8,891,704
290,000 Nisshin Oillio Group Ltd 800,309
1,494,000 Nisshin Steel Co Ltd 2,279,157
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
JAPAN -- CONTINUED
206,000 Nisshinbo Industries Inc 926,894
240,300 Nissho Iwai-Nichimen Holdings Corp* 813,494
1,098,000 Obayashi Corp 3,594,755
286,000 Okumura Corp 982,911
191,000 Olympus Optical Co Ltd 4,387,041
135,000 Ono Pharmaceutical Co Ltd 4,523,912
807,000 Osaka Gas Co Ltd 2,026,491
63,000 PanaHome Corp 335,302
157,000 Pioneer Corp 3,525,369
192,250 Promise Co 7,117,929
119,000 Royal Co Ltd 803,668
104,000 Ryosan Co 1,488,516
575,000 Sankyo Co Ltd 7,096,332
242,000 Sanwa Shutter Corp 1,095,098
396,000 Sanyo Electric Co Ltd 1,608,708
346,000 Seino Transportation Co Ltd 1,945,286
828,000 Sekisui Chemical Co Ltd 3,434,625
357,000 Sharp Corp 5,354,388
138,600 Shikoku Electric Power Co Inc 2,166,664
834,000 Shimizu Corp 2,666,112
89,000 Shizuoka Bank Ltd/The 577,417
157,000 Showa Shell Sekiyu 1,087,213
319,000 Sumitomo Electric Industries Ltd 2,783,185
158,000 Sumitomo Forestry Co Ltd 920,809
6,419,000 Sumitomo Metal Industries Ltd 5,721,426
1,745,000 Taiheiyo Cement Corp 3,559,393
1,454,000 Taisei Corp 3,551,508
265,000 Taisho Pharmaceutical Co Ltd 3,883,699
313,600 Takeda Chemical Industries Ltd 11,342,064
131,530 Takefuji Corp 7,439,990
66,000 Takuma Corp 358,622
62,000 Terumo Corp 1,198,234
197,000 Toagosei Co Ltd 361,313
535,500 Tohoku Electric Power Co Inc 7,893,898
400,300 Tokyo Electric Power Co Inc 7,787,804
426,000 Tokyo Gas Co 1,296,109
563,000 TonenGeneral Sekiyu KK 3,831,179
423,000 Toppan Printing Co Ltd 3,422,283
1,489,000 Toshiba Corp 6,087,187
407,000 Toshiba TEC Corp 1,744,086
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
JAPAN -- CONTINUED
372,000 Toto Ltd 2,977,785
211,000 Toyo Ink Manufacturing Co Ltd 661,862
123,000 Toyo Seikan Kaisha 1,350,386
432,400 Toyota Motor Corp 11,932,876
45,100 Uni-Charm Corp 2,087,247
108,000 Wacoal Corp 858,039
249,000 Yamaha Corp 4,101,628
179,000 Yamazaki Baking Co Ltd 1,152,117
--------------
375,995,583
--------------
MALAYSIA -- 0.0%
751,000 Promet Berhad*(a)(b) 1,976
234,000 Saship Holdings*(a)(b) 616
--------------
2,592
--------------
NETHERLANDS -- 5.1%
1,554,354 ABN Amro Holdings NV 27,219,078
399,285 Aegon NV 4,944,870
74,051 Corio NV 2,269,100
48,963 DSM NV 2,228,206
13,872 Gamma Holdings NV 531,529
1,142,548 ING Groep NV 22,278,205
63,319 KLM NV 703,521
317,439 Koninklijke Wessanen NV 2,774,190
234,222 Numico NV 4,543,882
287,653 OCE NV 3,707,659
1,477,198 Royal KPN NV* 10,233,657
25,754 Wereldhave NV 1,501,419
--------------
82,935,316
--------------
NEW ZEALAND -- 0.4%
544,100 BIL International Ltd (New Zealand Exchange)* 237,456
284,457 BIL International Ltd (Singapore Exchange)* 123,120
2,135,761 Telecom Corp of New Zealand 6,224,366
--------------
6,584,942
--------------
NORWAY -- 2.5%
112,276 Aker Kvaerner ASA* 1,404,171
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
NORWAY -- CONTINUED
1,455,929 DNB Holdings, Class A 6,817,247
40,110 Elkem ASA, Class A 845,418
243,428 Fred Olsen Energy* 763,133
114,400 Frontline Ltd 1,900,015
54,850 Gjensidige NOR ASA 1,843,907
193,277 Norsk Hydro ASA 10,158,700
215,514 Norske Skogindustrier ASA, Class A 3,852,494
240,304 Orkla ASA 4,576,135
87,150 Smedvig ASA, Class A 598,737
942,633 Statoil ASA 8,488,054
80,542 Tandberg Data ASA* 196,623
--------------
41,444,634
--------------
PORTUGAL -- 0.1%
95,163 Banco Espirito Santo SA 1,324,800
--------------
SINGAPORE -- 1.6%
23,000 Cerebos Pacific Ltd 36,214
5,025,249 ComfortDelgro Corp Ltd 2,336,458
153,550 Creative Technology Ltd 1,585,518
398,000 DBS Group Holdings Ltd 2,860,859
340,000 Fraser & Neave Ltd 1,891,152
711,193 Haw Par Corp Ltd 1,671,581
818,104 Hotel Properties Ltd 480,716
924,000 Keppel Corp Ltd 2,767,414
2,283,000 Neptune Orient Lines Ltd* 2,396,440
1,677,000 SembCorp Industries Ltd 1,253,277
179,000 Singapore Land Ltd 396,212
4,246,000 Singapore Telecom Ltd 4,117,862
1,946,201 Straits Trading Co Ltd 1,920,776
1,409,960 United Industrial Corp Ltd 683,705
264,000 United Overseas Bank Ltd 1,912,716
--------------
26,310,900
--------------
SPAIN -- 4.2%
28,614 ACS Actividades Cons y Serv 1,199,122
142,699 Altadis SA 3,368,388
626,384 Banco Santander Central Hispano SA 5,343,483
161,327 CIA ESP Petroleos 4,206,622
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
SPAIN -- CONTINUED
162,767 Corp Mapfre SA 1,787,019
818,820 Endesa SA 12,747,572
5,800 Endesa SA ADR 90,770
110,882 Iberdrola SA 1,884,494
2,141,667 Repsol YPF SA 36,163,551
3,200 Repsol YPF SA ADR 54,176
204,443 Sacyr Vallehermoso SA 2,244,580
--------------
69,089,777
--------------
SWEDEN -- 0.6%
114,432 Gambro AB, Class A 773,263
67,980 Gambro AB, Class B 455,303
94,900 Holmen AB, Class B 2,899,937
498,800 Nordea AB 2,535,402
114,317 SAS AB* 916,045
1,100 SKF AB, Series A 34,074
171,900 Svenska Handelsbanken, Class A 2,724,101
--------------
10,338,125
--------------
SWITZERLAND -- 5.3%
3,584 Banque Cantonale Vaudoise* 250,654
327,065 Credit Suisse Group 10,216,768
1,282 Pargesa Holdings SA (Bearer) 2,615,168
36,185 Roche Holding AG (Bearer) 4,243,609
424,711 Roche Holding AG (Genusschein) 32,523,119
7,715 SIG Holding AG 991,539
2,632 Sika AG 888,891
53,642 Swisscom AG 14,669,156
7,014 Valora Holding AG 1,352,169
15,522 ZKB Finanz Vision AG* 1,695,667
7,363 ZKB Pharma Vision AG* 629,552
128,767 Zurich Financial Services AG* 16,549,256
--------------
86,625,548
--------------
UNITED KINGDOM -- 19.5%
1,704,319 Abbey National Plc 14,206,901
1,200 Abbey National Plc ADR 20,760
305,718 Alliance & Leicester Plc 4,252,993
2,411,704 Aviva Plc 19,130,785
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
217,586 AWG Plc* 1,813,758
427,309 BAA Plc 3,082,086
2,190,983 Barclays Plc 15,941,702
481,532 Barratt Developments Plc 3,953,032
1,068,772 Boots Group Plc 11,174,404
324,325 BP Plc 2,200,775
229,372 British Energy Plc* 21,805
511,082 British Energy Plc (Deferred Shares)*(a) --
7,597,991 BT Group Plc 22,113,345
1,300 BT Group Plc ADR 38,155
1,429,219 Cable & Wireless 2,690,194
1,050,675 Colt Telecom Group Plc* 1,794,858
220,980 Davis Service Group Plc 1,455,814
857,307 GlaxoSmithKline Plc 16,367,467
1,226,897 Granada Plc 1,989,160
505,379 Great Portland Estates Plc 1,866,560
742,382 GUS Plc 8,031,957
877,491 HBOS Plc 9,771,319
1,279,179 HSBC Holdings Plc 16,449,765
164,588 Inchcape Plc 3,280,247
701,698 Intercontinental Hotels Group Plc* 5,427,464
417,994 Kelda Group Plc 2,707,458
391,573 Kesa Electricals Plc* 1,384,293
1,713,135 Kingfisher Plc 7,370,524
310,479 Land Securities Group Plc 4,198,906
4,669,183 Lloyds TSB Group Plc 30,649,743
701,698 Mitchells & Butlers Plc* 2,796,975
2,124,363 mmO2 Plc* 1,780,912
1,269,100 National Grid Transco Plc 7,773,652
257,337 Next Plc 4,379,781
1,346,224 Northern Foods Plc 3,375,083
129,172 Pennon Group Plc 1,187,086
292,383 Provident Financial Plc 2,955,227
500,670 RMC Group Plc 4,397,218
2,636,630 Rolls-Royce Group Plc 7,079,406
4,225,082 Royal & Sun Alliance Insurance Group 9,255,987
197,754 Royal Bank of Scotland Group 4,923,431
786,938 Sainsbury (J) Plc 3,432,368
526,700 Scottish & Newcastle Plc 3,132,485
714,034 Scottish & Southern Energy Plc 7,115,367
</Table>
See accompanying notes to the financial statements. 11
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
1,470,862 Scottish Power Plc 8,427,877
2,650 Scottish Power Plc ADR 62,540
263,168 Severn Trent Plc 2,664,102
1,606,571 Shell Transport & Trading Co Plc (Registered) 10,075,833
1,092,180 Somerfield Plc 2,219,909
309,748 Tate & Lyle Plc 1,731,952
864,575 Taylor Woodrow Plc 3,117,995
304,190 Tomkins Plc 1,264,228
294,374 United Utilities Plc 2,172,146
316,054 Whitbread Plc 3,731,891
206,745 Wilson (Connolly) Holdings 681,834
612,661 Wimpey (George) 3,779,399
297,258 Wolseley Plc 3,408,862
--------------
320,309,776
--------------
TOTAL COMMON STOCKS (COST $1,501,146,880) 1,545,067,093
--------------
PREFERRED STOCKS -- 0.5%
GERMANY -- 0.4%
72,748 RWE AG 4.35% 1,709,219
9,000 Villeroy & Boch AG (Non Voting) 5.78% 69,662
178,646 Volkswagen AG 5.30% 5,923,290
--------------
7,702,171
--------------
ITALY -- 0.1%
135,802 Fiat SPA 4.95%* 550,168
110,468 IFI Istituto Finanziario Industries 4.82%* 759,230
--------------
1,309,398
--------------
TOTAL PREFERRED STOCKS (COST $12,334,068) 9,011,569
--------------
RIGHTS AND WARRANTS -- 0.0%
FRANCE -- 0.0%
1,252,228 Eurotunnel SA Paris Warrants, Expires 10/31/03* 13,748
--------------
UNITED KINGDOM -- 0.0%
2,311,000 Eurotunnel SA Warrants, Expires 10/31/03* 13,525
</Table>
12 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
163,541 United Utilities Plc Rights, Expires 9/18/03* 278,082
--------------
291,607
--------------
TOTAL RIGHTS AND WARRANTS (COST $527,003) 305,355
--------------
SHORT-TERM INVESTMENTS -- 9.3%
CASH EQUIVALENTS -- 8.6%
$ 69,500,000 Royal Bank of Canada GC Time Deposit, 1.00%, due
09/02/03 69,500,000
$ 71,672,147 The Boston Global Investment Trust(c) 71,672,147
--------------
141,172,147
--------------
U.S. GOVERNMENT -- 0.7%
$ 11,590,000 U.S. Treasury Bill, 0.93%, due 10/23/03(d) 11,570,397
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $152,742,544) 152,742,544
--------------
TOTAL INVESTMENTS -- 103.9%
(Cost $1,666,750,495) 1,707,126,561
Other Assets and Liabilities (net) -- (3.9%) (64,475,402)
--------------
TOTAL NET ASSETS -- 100.0% $1,642,651,159
==============
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
ADR - American Depositary 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 (Note 1).
(b) Bankrupt issuer.
(c) Represents investment of security lending collateral (Note 1).
(d) All or a portion of this security is held as collateral for open futures
contracts (Note 6).
See accompanying notes to the financial statements. 13
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
AUGUST 31, 2003 (UNAUDITED)
At August 31, 2003, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
- --------------------------------------------------------------------
Financials 31.9%
Consumer Discretionary 12.1
Utilities 10.2
Energy 9.3
Industrials 8.8
Telecommunication Services 7.5
Materials 6.4
Health Care 6.1
Consumer Staples 6.0
Information Technology 1.7
-----
100.0%
=====
</Table>
14 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$67,233,532 (cost $1,666,750,495) (Note 1) $1,707,126,561
Cash 28,955
Foreign currency, at value (cost $2,220,038) (Note 1) 2,164,405
Receivable for investments sold 138,495
Receivable for Fund shares sold 3,123,008
Dividends and interest receivable 5,237,447
Foreign taxes receivable 1,067,342
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 10,191,189
Net receivable for closed forward foreign currency
contracts (Note 1) 459,049
Receivable for expenses reimbursed by Manager (Note 2) 108,283
--------------
Total assets 1,729,644,734
--------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 71,672,147
Payable for Fund shares repurchased 879,464
Payable to affiliate for (Note 2):
Management fee 745,187
Shareholder service fee 190,670
Payable for open forward foreign currency contracts
(Notes 1 and 6) 12,890,152
Payable for variation margin on open futures contracts
(Notes 1 and 6) 401,176
Accrued expenses 214,779
--------------
Total liabilities 86,993,575
--------------
NET ASSETS $1,642,651,159
==============
NET ASSETS CONSIST OF:
Paid-in capital $1,764,127,573
Accumulated undistributed net investment income 23,588,171
Accumulated net realized loss (182,286,146)
Net unrealized appreciation 37,221,561
--------------
$1,642,651,159
==============
NET ASSETS ATTRIBUTABLE TO:
Class II shares $ 95,729,769
==============
Class III shares $1,051,329,241
==============
Class IV shares $ 495,592,149
==============
SHARES OUTSTANDING:
Class II 4,884,599
==============
Class III 53,336,026
==============
Class IV 25,146,401
==============
NET ASSET VALUE PER SHARE:
Class II $ 19.60
==============
Class III $ 19.71
==============
Class IV $ 19.71
==============
</Table>
See accompanying notes to the financial statements. 15
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $4,012,786) $ 34,056,937
Interest (including securities lending income of
$966,294) 1,430,190
------------
Total income 35,487,127
------------
EXPENSES:
Management fee (Note 2) 3,952,723
Custodian fees 493,196
Audit fees 33,304
Transfer agent fees 28,980
Legal fees 27,048
Registration fees 17,112
Trustees fees and related expenses (Note 2) 14,933
Miscellaneous 11,684
Fees reimbursed by Manager (Note 2) (611,324)
------------
3,967,656
Shareholder service fee (Note 2) - Class II 96,623
Shareholder service fee (Note 2) - Class III 738,966
Shareholder service fee (Note 2) - Class IV 175,864
------------
Net expenses 4,979,109
------------
Net investment income 30,508,018
------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (9,857,884)
Closed futures contracts 3,372,686
Foreign currency, forward contracts and foreign
currency related transactions 15,382,749
------------
Net realized gain 8,897,551
------------
Change in net unrealized appreciation (depreciation) on:
Investments 262,008,420
Open futures contracts 4,453,439
Foreign currency, forward contracts and foreign
currency related transactions (13,679,481)
------------
Net unrealized gain 252,782,378
------------
Net realized and unrealized gain 261,679,929
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $292,187,947
============
</Table>
16 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 30,508,018 $ 28,729,710
Net realized gain (loss) 8,897,551 (40,517,478)
Change in net unrealized appreciation (depreciation) 252,782,378 (33,171,971)
-------------- --------------
Net increase (decrease) in net assets from
operations 292,187,947 (44,959,739)
-------------- --------------
Distributions to shareholders from:
Net investment income
Class II (544,118) (2,069,691)
Class III (5,933,581) (34,394,773)
Class IV (2,300,810) (13,242,397)
-------------- --------------
Total distributions from net investment income (8,778,509) (49,706,861)
-------------- --------------
(8,778,509) (49,706,861)
-------------- --------------
Net share transactions (Note 5):
Class II 10,404,716 30,892,601
Class III 16,197,776 (148,543,077)
Class IV 84,506,001 116,271,839
-------------- --------------
Increase (decrease) in net assets resulting from net
share transactions 111,108,493 (1,378,637)
-------------- --------------
Total increase (decrease) in net assets 394,517,931 (96,045,237)
NET ASSETS:
Beginning of period 1,248,133,228 1,344,178,465
-------------- --------------
End of period (including accumulated undistributed
net investment income of $23,588,171 and
$1,858,662, respectively) $1,642,651,159 $1,248,133,228
============== ==============
</Table>
See accompanying notes to the financial statements. 17
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.04 $ 17.41 $ 20.30 $ 20.85 $ 20.33 $ 23.16
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income(b) 0.37 0.37 0.28 0.40 0.41 0.39
Net realized and unrealized gain
(loss) 3.30 (1.05) (2.44) 1.11 1.33 (0.46)
------- ------- ------- ------- ------- -------
Total from investment operations 3.67 (0.68) (2.16) 1.51 1.74 (0.07)
------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.11) (0.69) (0.73) (0.22) (0.56) (0.48)
From net realized gains -- -- -- (1.84) (0.66) (2.28)
------- ------- ------- ------- ------- -------
Total distributions (0.11) (0.69) (0.73) (2.06) (1.22) (2.76)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 19.60 $ 16.04 $ 17.41 $ 20.30 $ 20.85 $ 20.33
======= ======= ======= ======= ======= =======
TOTAL RETURN(a) 22.88%** (4.11)% (10.71)% 7.25% 8.09% (0.76)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $95,730 $67,896 $42,495 $15,284 $21,162 $18,295
Net expenses to average daily net
assets 0.76%* 0.76% 0.76% 0.76% 0.76% 0.76%
Net investment income to average
daily net assets 4.08%* 2.06% 1.56% 1.88% 1.84% 1.71%
Portfolio turnover rate 18%** 51% 51% 31% 53% 60%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.08%* 0.10% 0.10% 0.08% 0.09% 0.28%
</Table>
* Annualized.
** Not Annualized.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) Computed using average shares outstanding throughout the period.
18 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ------------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ---------- ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.13 $ 17.50 $ 20.37 $ 20.91 $ 20.38 $ 23.20
---------- -------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income(b) 0.38 0.40 0.44 0.44 0.47 0.42
Net realized and unrealized gain
(loss) 3.31 (1.08) (2.59) 1.09 1.28 (0.47)
---------- -------- ---------- ---------- ---------- ----------
Total from investment operations 3.69 (0.68) (2.15) 1.53 1.75 (0.05)
---------- -------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.11) (0.69) (0.72) (0.23) (0.56) (0.49)
From net realized gains -- -- -- (1.84) (0.66) (2.28)
---------- -------- ---------- ---------- ---------- ----------
Total distributions (0.11) (0.69) (0.72) (2.07) (1.22) (2.77)
---------- -------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 19.71 $ 16.13 $ 17.50 $ 20.37 $ 20.91 $ 20.38
========== ======== ========== ========== ========== ==========
TOTAL RETURN(a) 22.88%** (4.05)% (10.60)% 7.32% 8.20% (0.68)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $1,051,329 $845,997 $1,053,104 $1,280,603 $1,799,929 $1,998,447
Net expenses to average daily net
assets 0.69%* 0.69% 0.69% 0.69% 0.69% 0.69%
Net investment income to average
daily net assets 4.15%* 2.26% 2.37% 2.07% 2.09% 1.84%
Portfolio turnover rate 18%** 51% 51% 31% 53% 60%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.08%* 0.10% 0.10% 0.08% 0.09% 0.28%
</Table>
* Annualized.
** Not Annualized.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 19
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.12 $ 17.50 $ 20.37 $ 20.90 $ 20.37 $ 23.19
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(b) 0.39 0.38 0.36 0.50 0.55 0.42
Net realized and unrealized gain
(loss) 3.31 (1.05) (2.49) 1.05 1.21 (0.46)
-------- -------- -------- -------- -------- --------
Total from investment operations 3.70 (0.67) (2.13) 1.55 1.76 (0.04)
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.11) (0.71) (0.74) (0.24) (0.57) (0.50)
From net realized gains -- -- -- (1.84) (0.66) (2.28)
-------- -------- -------- -------- -------- --------
Total distributions (0.11) (0.71) (0.74) (2.08) (1.23) (2.78)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 19.71 $ 16.12 $ 17.50 $ 20.37 $ 20.90 $ 20.37
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) 22.96%** (4.02)% (10.52)% 7.45% 8.18% (0.60)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $495,592 $334,240 $248,579 $155,558 $291,894 $567,219
Net expenses to average daily net
assets 0.63%* 0.63% 0.63% 0.63% 0.63% 0.63%
Net investment income to average
daily net assets 4.24%* 2.13% 1.97% 2.34% 2.47% 1.85%
Portfolio turnover rate 18%** 51% 51% 31% 53% 60%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.08%* 0.10% 0.10% 0.08% 0.09% 0.28%
</Table>
* Annualized.
** Not Annualized.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) Computed using average shares outstanding throughout the period.
20 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO International Intrinsic Value Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund seeks high total return through investment in equity securities
of non-U.S. issuers. The Fund's benchmark is the Citigroup (f/k/a Salomon
Smith Barney) Primary Market Index ("PMI") Europe, Pacific, Asia Composite
("EPAC") Value Style Index.
Throughout the six months ended August 31, 2003, the Fund had three
classes of shares outstanding: Class II, Class III and Class IV. The
principal economic difference among the classes of shares is the level of
shareholder service fees borne by the classes. Eligibility for and
automatic conversion among the various classes of shares is generally
based on the total amount of assets invested in a particular fund or with
GMO, as more fully outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of mutual funds are valued at their net asset value as reported on
each business day. 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
21
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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 6 and represents the currency
exposure the Fund has acquired or hedged through currency contracts as of
August 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
22
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
tends to decrease the Fund's exposure to the underlying instrument or
hedge other Fund instruments. Upon entering into a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government and
agency obligations in accordance with the initial margin requirements of
the broker or exchange. 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 6 for
all open futures contracts as of August 31, 2003.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
23
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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 the price of the security or index underlying these
transactions. At August 31, 2003, there were no open swap agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the
24
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
investment of the collateral, the risk of delay in recovery or loss of
rights in the collateral should the borrower of the securities fail
financially. The Fund receives compensation for lending its securities. At
August 31, 2003, the Fund loaned securities having a market value of
$67,233,532 collateralized by cash in the amount of $71,672,147 which was
invested in a short-term instrument.
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 carryover for
U.S. federal income tax purposes. Therefore, no provision for U.S. federal
income or excise tax is necessary. Taxes on foreign interest and dividend
income 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests.
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.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code of $63,430,844 and $95,091,208 expiring in 2010 and 2011,
respectively. The Fund has elected to defer to March 1, 2003 post-October
capital losses of $22,379,754.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the
amortization of premiums and discounts. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. Dividends
representing a return of capital are reflected as a
25
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
reduction of cost, when the amount of the return of capital is
conclusively determined. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. Investment
income, common expenses and realized and unrealized gains and losses are
allocated pro-rata among the classes of shares of the Fund based on the
relative net assets of each class. Shareholder service fees, which are
directly attributable to a class of shares, are charged to that class'
operations.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .54% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .22%
for Class II shares, .15% for Class III shares, and .09% for Class IV
shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $10,701. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
26
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
As of August 31, 2003, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $387,164,432 and $248,269,666, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$1,674,287,071 $166,355,923 $(133,516,433) $32,839,490
</Table>
4. PRINCIPAL SHAREHOLDER
At August 31, 2003, 10.1% of the outstanding shares of the Fund were held
by one shareholder. Investment activities of this shareholder may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
--------------------------- ----------------------------
Shares Amount Shares Amount
Class II: ----------- -------------- ------------ --------------
Shares sold 1,418,539 $ 24,653,226 2,552,285 $ 45,282,901
Shares issued to shareholders
in reinvestment of distributions 23,085 445,082 98,783 1,661,781
Shares repurchased (789,554) (14,693,592) (858,945) (16,052,081)
---------- ------------ ----------- ------------
Net increase 652,070 $ 10,404,716 1,792,123 $ 30,892,601
========== ============ =========== ============
</Table>
27
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
--------------------------- -----------------------------
Shares Amount Shares Amount
Class III: ----------- -------------- ------------- --------------
Shares sold 10,233,643 $ 186,254,144 18,150,851 $ 313,632,458
Shares issued to shareholders
in reinvestment of distributions 213,677 4,143,194 1,458,645 24,738,029
Shares repurchased (9,566,108) (174,199,562) (27,340,396) (486,913,564)
---------- ------------- ------------ -------------
Net increase (decrease) 881,212 $ 16,197,776 (7,730,900) $(148,543,077)
========== ============= ============ =============
</Table>
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
--------------------------- ----------------------------
Shares Amount Shares Amount
Class IV: ----------- -------------- ------------ --------------
Shares sold 5,134,820 $ 98,142,779 13,102,251 $ 231,497,089
Shares issued to shareholders
in reinvestment of distributions 118,660 2,300,810 684,808 11,576,480
Shares repurchased (840,528) (15,937,588) (7,261,462) (126,801,730)
---------- ------------ ----------- -------------
Net increase 4,412,952 $ 84,506,001 6,525,597 $ 116,271,839
========== ============ =========== =============
</Table>
28
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
---------- ---------------- ----------------- ------------ --------------
Buys
10/31/03 AUD 52,339,468 $ 33,672,283 $ 1,700,526
10/31/03 CAD 40,680,927 29,242,012 1,196,079
9/26/03 CHF 95,522,625 68,242,856 (1,707,143)
9/26/03 DKK 320,287,236 47,322,579 1,680,955
9/26/03 EUR 112,088,486 122,980,758 1,156,601
9/26/03 GBP 17,606,750 27,805,938 327,583
10/31/03 HKD 286,309,942 36,709,007 66,365
10/31/03 JPY 2,140,056,380 18,377,041 323,705
9/26/03 NOK 467,334,753 62,267,170 (2,110)
10/31/03 NZD 8,954,461 5,134,160 219,326
9/26/03 SEK 764,479,092 91,327,501 2,647,245
10/31/03 SGD 33,819,350 19,299,713 174,086
------------
$ 7,783,218
============
Sales
10/31/03 AUD 15,621,248 $ 10,049,836 $ (495,248)
10/31/03 CAD 68,585,648 49,300,311 (1,876,823)
9/26/03 CHF 42,830,710 30,598,928 442,717
9/26/03 DKK 72,504,930 10,712,635 (359,579)
9/26/03 EUR 136,593,605 149,867,178 (4,127,159)
9/26/03 GBP 33,646,060 53,136,455 (569,168)
10/31/03 HKD 404,585,469 51,873,612 (95,773)
10/31/03 JPY 13,417,083,013 115,214,859 (2,363,073)
9/26/03 NOK 251,564,005 33,518,112 256,001
10/31/03 NZD 19,127,738 10,967,144 (467,371)
9/26/03 SEK 163,695,628 19,555,686 (817,976)
10/31/03 SGD 1,844,140 1,052,397 (8,729)
------------
$(10,482,181)
============
</Table>
29
<Page>
GMO INTERNATIONAL INTRINSIC VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
CURRENCY ABBREVIATIONS:
<Table>
AUD - Australian Dollar
HKD - Hong Kong Dollar
CAD Canadian Dollar
JPY - Japanese Yen
CHF - Swiss Franc
NOK - Norwegian Krone
DKK - Danish Krona
NZD - New Zealand Dollar
EUR - Euro
SEK - Swedish Krona
GBP - British Pound
SGD -Singapore Dollar
</Table>
FUTURES CONTRACTS
<Table>
<Caption>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- ---------------------- ------------------ ------------- --------------
Buys
200 DAX September 2003 $19,161,000 $ 716,266
569 FTSE 100 September 2003 37,553,158 (38,834)
123 MIB30 September 2003 17,215,791 (133,049)
745 MSCI September 2003 16,685,892 37,618
264 TSE TOPIX September 2003 22,682,550 869,550
-----------
$ 1,451,551
===========
Sales
202 S&P Toronto 60 September 2003 $12,331,298 $ (583,583)
916 SPI 200 September 2003 47,386,015 (1,205,576)
-----------
$(1,789,159)
===========
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments of margin requirements of the relevant broker or
exchange.
30
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
COMMON STOCKS -- 91.0%
ARGENTINA -- 0.3%
235,269 Grupo Financiero Galicia SA ADR* 952,839
144,250 Petrobras Energia Participaciones SA ADR* 1,081,875
128,400 Telecom Argentina SA ADR* 743,436
30,500 Tenaris SA ADR 769,515
--------------
3,547,665
--------------
AUSTRALIA -- 3.9%
512,137 Ansell Ltd 2,237,495
958,387 Aristocrat Leisure Ltd 1,035,928
234,351 Australian Gas Light Co Ltd 1,632,116
1,521,093 BHP Steel Ltd 4,558,362
844,580 Boral Ltd 2,913,668
2,857,368 CFS Gandel Retail Trust 2,441,249
294,908 CSL Ltd 3,225,859
2,445,514 CSR Ltd 3,197,375
1,353,828 Deutsche Office Trust 963,892
1,568,379 Investa Property Group 1,979,510
111,733 Jupiters Ltd 473,691
244,405 Lion Nathan Ltd 833,667
810,301 Mayne Group Ltd 1,725,497
383,591 Orica Ltd 2,857,694
1,265,599 Origin Energy Ltd 3,415,893
1,366,897 Santos Ltd 5,166,789
131,346 Sonic Healthcare Ltd 562,791
759,665 Southcorp Ltd 1,519,332
332,978 Stockland Trust Group Units 1,053,893
--------------
41,794,701
--------------
AUSTRIA -- 2.1%
74,886 Austrian Airlines* 525,369
11,261 Bau Holdings AG 865,442
56,328 Boehler Uddeholm (Bearer) 2,975,243
11,136 Brau Union AG 1,529,499
106 BWT AG 1,260
52,603 Flughafen Wien AG 1,959,554
272,339 Immofinanz Immobilien Anlagen AG* 1,880,716
43,955 Mayr-Melnhof Karton AG (Bearer) 3,754,488
12,952 Oesterreichische Brau Beteiligungs AG 1,734,840
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
AUSTRIA -- CONTINUED
45,237 RHI AG* 602,942
81,128 VA Technologie AG (Bearer)* 2,280,203
72,321 Voestalpine AG 2,816,361
119,094 Wienerberger AG 2,268,570
--------------
23,194,487
--------------
BELGIUM -- 1.6%
132,959 AGFA-Gevaert NV 2,977,904
22,922 Barco NV 1,421,883
19,359 Bekaert SA 929,023
8,759 CMB SA 383,699
8,771 Cofinimmo SA 1,031,339
40,330 Colruyt SA 2,935,652
114,042 Delhaize Group 4,421,049
11,145 Sofina SA 436,829
29,351 Tessenderlo Chemie 913,564
32,506 UCB SA 864,015
9,965 Umicore 558,516
--------------
16,873,473
--------------
BRAZIL -- 0.1%
30,859,907 Companhia Siderurgica Nacional SA 1,037,001
10,607,000 Compania Saneamento Basico SAO PA 463,900
--------------
1,500,901
--------------
CANADA -- 5.2%
175,500 Agrium Inc 2,107,797
221,400 ATI Technologies Inc* 3,335,804
47,400 Cameco Corp 1,640,198
244,000 Canadian Tire Corp 6,156,508
319,700 CGI Group Inc* 1,751,591
203,100 CP Ships Ltd 4,253,365
77,000 Dofasco Inc 1,740,223
17,000 Fairfax Financial Holdings Ltd 2,834,048
301,600 Hudson's Bay Co 1,932,901
85,100 MDS Inc 1,187,099
198,400 Methanex Corp 1,986,646
172,800 Moore Wallace Inc* 2,441,610
173,700 Nexen Inc 4,574,315
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
CANADA -- CONTINUED
148,800 Onex Corp 1,651,963
49,800 Penn West Petroleum Ltd* 1,620,928
244,400 Quebecor Inc* 3,337,012
124,800 Quebecor World Inc 2,276,207
304,000 Rogers Communications Inc 4,341,448
116,600 Sears Canada Inc 1,567,668
29,800 Sobeys Inc 780,259
81,700 Torstar Corp 1,551,955
207,600 TransAlta Corp 2,845,025
--------------
55,914,570
--------------
CHINA -- 0.8%
1,872,000 Angang New Steel Co, Class H 648,054
1,158,000 Beijing Datang Power Co Ltd 627,302
1,860,000 Brilliance China Automotive Holdings Ltd 590,241
4,325,000 China Petroleum & Chemical Corp, Class H 1,317,017
308,400 China Resources Enterprise Ltd 298,540
462,000 Cosco Pacific Ltd 515,351
975,300 Denway Motors Ltd 550,215
638,000 Huaneng Power International Inc, Class H 875,278
1,166,000 Legend Group Ltd 500,824
3,708,000 PetroChina Co Ltd, Class H 1,295,531
196,000 Shanghai Industrial Holdings Ltd, Class H 326,694
1,180,000 Yanzhou Coal Mining Co Ltd, Class H 692,173
--------------
8,237,220
--------------
CZECH REPUBLIC -- 0.0%
26,700 Ceske Radiokomunikace* 256,768
--------------
FINLAND -- 2.1%
57,550 Amer Group, Class A 1,810,226
147,100 Elisa Oyj* 1,437,360
95,900 Finnair, Class A 498,015
255,400 Huhtamaki Oyj, Class I 2,579,714
6,700 KCI Konecranes Oyj 196,477
191,500 Kemira Oyj 1,652,548
199,400 Kesko Oyj 2,576,703
79,200 Metso Oyj 817,365
185,900 M-real Oyj 1,647,084
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
FINLAND -- CONTINUED
10,300 Nokian Renkaat OYJ 569,942
45,800 Orion-Yhtymae Oyj 784,428
144,900 Pohjola Group Plc 2,588,324
239,429 Rautaruukki Oyj* 1,256,514
97,400 Sponda Oyj 577,451
3,200 Stockmann Oyj AB, Class A 55,931
37,097 Stockmann Oyj AB, Class B 646,366
45,100 Uponor Oyj 1,015,063
5,700 Wartsila Oyj ABP 79,477
104,300 Wartsila Oyj, Class B 1,417,646
--------------
22,206,634
--------------
FRANCE -- 5.3%
98,791 Air France 1,556,439
1,474,556 Alstom* 3,626,370
280,308 Altran Technologies SA* 2,803,604
108,098 Business Objects SA* 2,883,943
108,945 Cap Gemini SA* 4,479,421
72,074 Dassault Systemes SA 2,603,378
12,044 Eiffage SA 1,098,840
281,168 Equant NV* 2,182,469
96,617 Essilor International SA 3,924,805
22,516 Eurazeo 1,159,383
147,714 Euronext NV 3,700,838
27,269 Gecina SA 3,083,679
1,023,975 Havas SA 4,777,944
5,097 Hermes International 800,227
200,362 JC Decaux SA* 2,666,127
21,040 Remy Cointreau SA 650,953
275,868 Rhodia SA 1,920,231
17,949 Sagem SA 1,616,894
454,496 SCOR SA* 2,395,158
379 Seb SA 32,102
19,361 Technip SA 1,741,965
49,186 Unibail 3,682,889
12,717 Vallourec 839,814
39,774 Wendel Investissement 1,314,403
83,835 Zodiac SA 2,226,507
--------------
57,768,383
--------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
GERMANY -- 6.1%
21,151 Aareal Bank AG 482,547
36,730 Adidas-Salomon AG 3,072,831
191,793 Aixtron AG 1,050,742
2,402 AMB Aachener & Muenchener AG 136,235
1,500 AVA Allg Handels der Verbrau 48,253
78,570 Bankgesellschaft Berlin AG* 190,639
28,370 Bewag AG, Class A 451,638
2,450 BHW Holding AG 20,443
65,950 Bilfinger & Berger 1,799,302
91,431 Celanese AG 2,790,622
316,180 Continental AG 8,140,293
87,500 Deutsche Lufthansa AG 1,201,789
45,895 Douglas Holdings AG 1,124,663
227,611 Epcos AG* 3,848,369
64,696 HeidelbergCement AG* 2,301,364
32,480 Hochtief AG 606,216
43,443 IKB Deutsche Industriebank AG 786,985
46,375 IWKA AG 628,292
124,558 KarstadtQuelle AG 3,253,336
379,677 MAN AG 8,299,431
54,207 Medion AG 2,142,499
101,652 Merck KGaA 2,959,731
159,643 MG Technologies AG 1,594,976
29,809 Puma AG Rudolf Dassler Sport 3,338,185
154,339 Qiagen NV* 2,007,968
77,540 Schwarz Pharma AG 1,855,859
35,105 Software AG* 597,398
1,419 Springer (Axel) AG 91,917
51,168 Sudzucker AG 800,527
581,112 TUI AG 9,123,441
463,595 WCM Beteiligungs & Grundbesitz* 1,109,578
--------------
65,856,069
--------------
HONG KONG -- 1.7%
345,500 Asia Satellite Telecommunications Holdings Ltd 551,517
476,500 ASM Pacific Technology 1,600,685
209,600 Dah Sing Financial Services 1,241,580
213,000 Esprit Holdings Ltd 533,910
5,046,000 First Pacific Co* 821,661
621,000 Great Eagle Holdings Ltd 589,203
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
HONG KONG -- CONTINUED
345,000 Guoco Group 2,255,957
1,866,000 Hang Lung Group Co Ltd 1,914,006
1,603,200 HKR International Ltd* 457,361
98,700 Hong Kong Aircraft Engineering Co Ltd 358,766
28,400 KMB Holdings Ltd 133,637
28,000 Mandarin Oriental* 14,000
6,924,000 New World Development Co Ltd 4,971,491
3,254,000 QPL International Holdings Ltd* 949,162
22,212 SCMP Group Ltd 9,398
6,553,000 Shun Tak Holdings Ltd 2,268,535
90,000 Sino Land 42,119
--------------
18,712,988
--------------
INDIA -- 0.3%
17,700 Dr. Reddy's Laboratories Ltd ADR 448,695
45,300 ICICI Bank Ltd ADR 438,957
9,100 Infosys Technologies ADR 515,515
15,700 ITC Ltd GDR 305,679
30,400 Ranbaxy Laboratories Ltd GDR 708,016
41,800 State Bank of India GDR 1,049,180
--------------
3,466,042
--------------
INDONESIA -- 0.3%
848,000 Astra International Tbk* 379,776
1,710,000 Bank Central Asia Tbk 589,481
194,000 Bank Mandiri Persero PT* 19,434
1,101,000 HM Sampoerna Tbk 525,522
6,825,000 Indofood Sukses Makmur Tbk 542,943
471,000 Indonesian Satellite Corp Tbk PT 449,629
2,068,000 Telekomunikasi Indonesia Tbk PT, Class B 1,115,038
--------------
3,621,823
--------------
IRELAND -- 0.4%
111,171 DCC Ord 1,305,985
765,917 Fyffes Ord 1,219,305
343,405 Independent News & Media Plc 629,631
107,032 Kerry Group Plc 1,698,026
--------------
4,852,947
--------------
</Table>
See accompanying notes to the financial statements.
6
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
ISRAEL -- 0.1%
59,800 Check Point Software Technologies* 1,044,706
122,100 Machteshim Agan Industries 325,582
--------------
1,370,288
--------------
ITALY -- 4.1%
2,057,370 Banca Nazionale Del Lavoro SPA* 3,200,700
38,266 Banca Popolare di Cremona Scrl 799,073
276,479 Banca Popolare di Lodi Scrl 2,604,427
1,586,099 Banca Popolare di Milano 7,261,547
258,316 Banche Popolari Unite Scrl* 3,939,275
127,163 Benetton Group SPA 1,291,413
478,960 Bulgari SPA 3,186,652
866,444 Capitalia SPA* 1,750,335
48,084 e.Biscom* 1,710,442
102,000 Fornara SPA(a)*(b) --
213,400 Grassetto SPA*(b)(a) 2,343
514,486 IFIL Finanziaria di Partecipazioni SPA* 1,301,989
108,339 Italcementi SPA 1,254,874
104,574 Lottomatica SPA 1,748,584
1,385,568 Parmalat Finanziaria SPA 4,479,978
7,820,610 Pirelli & Co 5,623,992
629,975 RCS MediaGroup SPA* 1,860,537
299,520 Tiscali SPA* 1,907,289
--------------
43,923,450
--------------
JAPAN -- 16.0%
680,000 AIOI Insurance Co Ltd 1,719,232
156,700 Aoyama Trading 2,492,588
27,000 Bandai Co 1,159,325
765,000 Bosch Automotive Systems Corp* 3,324,092
320,000 Brother Industries Ltd 2,838,533
344,000 Calsonic Kansei Corp 2,158,108
140,000 Canon Sales Co Inc 1,072,677
295,000 Casio Computer Co Ltd 2,288,096
370,000 Chiyoda Corp* 2,146,812
22,000 Chudenko Corp 271,512
166,000 Citizen Watch Co Ltd 1,232,053
802,000 Cosmo Oil Co Ltd 1,409,068
450,000 Daido Steel Co Ltd 910,182
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
JAPAN -- CONTINUED
1,025,500 Daiei Inc* 1,467,762
36,700 Daiichikosho Co Ltd 1,210,962
1,463,000 Dainippon Ink and Chemicals Inc 3,109,565
121,000 Dainippon Screen Manufacturing Co Ltd* 755,991
51,000 Ezaki Glico Co Ltd 304,217
106,200 FamilyMart 2,120,723
559,000 Furukawa Electric Co Ltd 2,031,334
153,000 Gunze Ltd 621,546
18,500 H I S Co Ltd 270,333
644,400 Haseko Corp* 640,644
1,752,500 Hitachi Zosen Corp* 1,952,563
29,000 House Foods Corp 269,421
876,000 Ishikawajima-Harima Heavy Industries 1,388,927
2,759,000 Isuzu Motors Ltd* 5,107,508
249,000 Itoham Foods Inc 949,649
87,000 Izumiya Co Ltd 383,253
140,000 Japan Securities Finance Co 646,726
309,000 Kamigumi Co Ltd 1,776,988
180,000 Kandenko Co 612,444
1,123,000 Kanebo Ltd* 1,366,695
3,769,000 Kawasaki Heavy Industries Ltd 4,780,699
1,916,000 Kawasaki Kisen Kaisha Ltd 6,535,550
1,330,000 Kenwood Corp* 3,886,956
215,000 Kikkoman Corp 1,363,558
91,000 Kissei Pharmaceutical Co Ltd 1,195,603
1,920,000 Kobe Steel Ltd* 2,237,916
13,499 Konica Minolta Holdings Inc 184,992
76,000 Kyudenko Corp 265,101
87,000 Lopro Corp* 391,455
219,000 Maeda Corp 718,864
114,000 Maeda Road Construction 565,701
90,000 Makita Corp 810,679
2,874,000 Marubeni Corp 4,335,139
22,100 Matsumotokiyoshi Co Ltd 958,399
267,000 Meiji Dairies Corp 919,901
442,000 Mitsubishi Gas Chemical Co Inc 1,117,501
3,244,000 Mitsubishi Materials Corp* 4,837,641
1,022,000 Mitsui Engineering & Shipbuilding 1,322,609
1,222,000 Mitsui Trust Holding Inc* 4,042,612
59,000 Mitsumi Electric Co Ltd 699,829
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
JAPAN -- CONTINUED
128,000 Nagase & Co 739,390
8,000 Nagoya Railroad Co Ltd* 22,352
272,000 Nichiro Corp 356,668
121,000 Nippon Chemi-Con Corp 445,920
55,000 Nippon Electric Glass Co Ltd 610,430
128,000 Nippon Hodo Co 592,389
2,293,000 Nippon Light Metal 4,402,057
115,000 Nippon Meat Packers Inc 1,109,787
1,748,000 Nippon Mining Holdings Inc 4,179,739
1,301,000 Nippon Shinpan Co 2,096,229
153,000 Nippon Soda Co Ltd 363,224
989,000 Nippon Suisan Kaisha Ltd 2,271,615
647,000 Nishimatsu Construction 2,040,590
199,000 Nisshin Seifun Group Inc 1,453,102
2,433,000 Nisshin Steel Co Ltd 3,711,639
382,090 Nissho Iwai-Nichimen Holdings Corp* 1,293,500
6,000 Noritake Co Ltd 20,723
286,000 NTN Corp 1,375,094
146,000 Okasan Securities Co Ltd 520,535
662,000 Oki Electric Industry Co Ltd* 2,258,108
1,083,000 Orient Corp* 1,661,442
247 Rakuten Inc 582,148
2,000 Royal Co Ltd 13,507
78,700 Ryosan Co 1,126,406
36,000 Sanki Engineering 178,642
145,000 Sanyo Securities Co Ltd(a)*(b) 1,243
259,000 Seino Transportation Co Ltd 1,456,154
123,000 Sekisui Chemical Co Ltd 510,216
11,720 SFCG Co Ltd 1,345,972
48,700 Shimachu Co 872,326
18,800 Shinko Electric Industries 530,099
1,002,000 Shinko Securities Co Ltd* 2,310,062
924,000 Showa Denko* 1,758,039
99,500 Snow Brand Milk Products Co Ltd* 274,589
42,000 Square Enix Co Ltd 842,304
2,572,000 Sumitomo Heavy Industries Ltd* 5,621,015
3,205,000 Sumitomo Metal Industries Ltd 2,856,702
1,002,000 Sumitomo Realty and Development Co Ltd 6,492,218
140,000 Sumitomo Rubber Industries Inc 655,125
119,000 Suruga Bank Ltd/The 670,063
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
JAPAN -- CONTINUED
41,000 Suzuken Co Ltd 1,004,971
2,030,600 Taiheiyo Cement Corp 4,141,951
1,517,000 Taisei Corp 3,705,391
480,000 Toda Corp 1,193,007
295,000 Toho Gas Co Ltd 771,126
1,064,000 Tokyu Land Corp 1,814,673
170,000 Toshiba TEC Corp 728,488
168,000 Toyo Ink Manufacturing Co Ltd 526,980
159,000 Tsumura & Co* 1,327,271
928,000 Ube Industries Ltd 1,646,349
161,000 Victor Co of Japan Ltd* 1,382,602
66,000 Wacoal Corp 524,357
160,000 Yamaha Motor Co 1,645,526
238,000 Yodogawa Steel Works 864,861
300,000 Yokohama Rubber Co 815,050
--------------
172,894,200
--------------
MALAYSIA -- 0.0%
357,000 Promet Berhad(a)*(b) 939
312,000 Rekapacific Berhad*(b) 821
--------------
1,760
--------------
MEXICO -- 0.2%
210,000 Cemex SA de CV CPO 1,043,053
115,000 Grupo Financiero Banorte SA de CV 306,444
540,000 Grupo Financiero BBVA Bancomer SA* 438,539
--------------
1,788,036
--------------
NETHERLANDS -- 5.3%
874,680 Buhrmann NV* 7,211,937
115,827 Corio NV 3,549,216
161,925 CSM 3,262,216
4,886,595 Getronics NV* 5,311,343
891,172 Hagemeyer NV 3,238,563
91,915 Hunter Douglas NV 3,061,715
303,184 KLM NV 3,368,601
388,637 Koninklijke Vendex KBB NV 4,399,118
583,954 Numico NV 11,328,645
304,274 OCE NV 3,921,893
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
NETHERLANDS -- CONTINUED
168,993 Randstad Holdings NV 2,272,833
17,008 Rodamco Europe NV 850,932
191,859 Van der Moolen Holding NV 2,550,875
50,294 Wereldhave NV 2,932,064
--------------
57,259,951
--------------
NEW ZEALAND -- 0.2%
861,108 Fletcher Building Ltd 2,087,171
--------------
PHILIPPINES -- 0.2%
4,231,000 Ayala Land Inc 446,422
453,000 Bank of the Philippine Islands 337,875
107,000 Philippine Long Distance Telephone* 1,041,386
2,967,000 SM Prime Holdings 291,464
--------------
2,117,147
--------------
POLAND -- 0.3%
20,200 Bank Pekao SA 642,996
13,700 BRE Bank SA* 389,552
132,900 KGHM Polska Miedz SA* 688,904
113,000 Polski Koncern Naftowy Orlen 702,331
127,500 Telekomunikacja Polska SA 534,184
--------------
2,957,967
--------------
PORTUGAL -- 0.3%
176,379 PT Multimedia Servicos de Telecomunicacoes e Multimedia
SGPS SA* 2,889,206
--------------
RUSSIA -- 0.1%
17,600 MMC Norilsk Nickel ADR 695,200
15,200 Tatneft ADR 349,600
--------------
1,044,800
--------------
SINGAPORE -- 2.9%
2,406,797 ComfortDelgro Corp Ltd 1,119,025
504,600 Creative Technology Ltd 5,210,371
2,850,000 Datacraft Asia Ltd* 3,021,000
343,000 Elec & Eltek International Co Ltd 737,450
2,661,000 GES International Ltd 842,521
</Table>
See accompanying notes to the financial statements. 11
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
SINGAPORE -- CONTINUED
149,000 Hotel Properties Ltd 87,552
150,570 Interra Resources Ltd* 23,192
1,824,000 Keppel Land Ltd 1,592,059
115,000 Marco Polo Developments Ltd 118,746
3,604,000 MobileOne Ltd 2,837,310
7,459,000 Neptune Orient Lines Ltd* 7,829,631
11,500,100 Pacific Century Region Developments Ltd* 1,672,957
933,000 SembCorp Industries Ltd 697,262
2,186,000 Singapore Exchange Ltd 2,057,676
1,141,000 ST Assembly Test Services Ltd* 1,458,064
2,520,000 Want Want Holdings Ltd 2,268,000
--------------
31,572,816
--------------
SOUTH AFRICA -- 0.5%
81,764 ABSA Group Ltd 395,434
356,000 FirstRand Ltd 369,113
11,990 Impala Platinum Holdings Ltd 932,357
106,065 Iscor Ltd 299,529
28,000 Nedcor Ltd 317,817
75,000 Remgro Ltd 624,147
422,000 Sanlam Ltd 417,394
83,000 Sasol Ltd 962,483
137,000 Standard Bank Investment Corp 614,911
58,900 Tiger Brands Ltd 577,750
--------------
5,510,935
--------------
SOUTH KOREA -- 1.1%
69,500 Hankook Tire Co Ltd 403,463
6,500 Hankuk Electric Glass Co Ltd 546,149
46,100 Hansol Paper Co 264,099
74,000 Hyundai Department Store Co Ltd* 979,758
72,700 Hyundai Industrial Development 577,528
22,300 Hyundai Mobis 785,445
34,700 Hyundai Motor Co 1,154,458
84,700 Hyundai Securities Co* 554,243
44,300 Inchon Iron & Steel Co 282,738
4,900 Kangwon Land Inc 550,197
94,800 KIA Motors Corp 734,584
13,000 LG Electronics Inc 706,132
</Table>
12 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
SOUTH KOREA -- CONTINUED
38,800 LG Engineering & Construction Ltd 648,725
48,300 LG International Corp 320,565
32,900 LG Investment & Securities Co Ltd 396,503
94,800 Samsung Corp 683,896
8,400 Samsung SDI Co Ltd 787,778
3,500 Shinsegae Co Ltd 620,836
56,900 SK Corp 806,476
--------------
11,803,573
--------------
SPAIN -- 2.8%
36,786 Acciona SA 1,898,205
77,316 ACS Actividades Cons y Serv 3,240,069
173,597 Aguas de Barcelona SA 2,220,398
47,487 Corp Financiera Alba 1,151,162
252,768 Corp Mapfre SA 2,775,140
4,186 Ebro Puleva SA 37,915
396,608 Enagas 3,304,959
2,021,626 Iberia (Lineas Aer de Espana) 4,194,937
155,190 Indra Sistemas SA 1,717,462
545,956 Sacyr Vallehermoso SA 5,994,051
392,678 Telefonica Publicidad e Informacion SA 1,819,331
96,620 Zardoya-Otis SA 1,566,788
--------------
29,920,417
--------------
SWEDEN -- 2.8%
22,400 Custos AB 428,647
70,500 Drott AB, Class B 978,089
462,200 Eniro AB 3,786,622
398,048 Gambro AB, Class A 2,689,771
287,712 Gambro AB, Class B 1,926,981
38,300 Getinge Industrier AB, Class B 1,181,816
45,570 Holmen AB, Class B 1,392,520
63,110 Kinnevik Investment, Class B 1,335,989
35,900 Lundbergforetagen AB 953,189
4,550 Nobel Biocare AB*(b) 323,733
7,000 Nobel Biocare Holding AG 553,389
1,300 SAAB AB, Class B 17,336
708,200 Skanska AB, Class B 4,616,191
31,935 SKF AB, Series A 989,232
</Table>
See accompanying notes to the financial statements. 13
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
SWEDEN -- CONTINUED
95,570 SSAB Swedish Steel, Class A 1,303,040
936,200 Swedish Match AB 6,326,281
218,800 Telelogic AB* 206,731
83,700 Trelleborg AB, Class B 1,041,095
--------------
30,050,652
--------------
SWITZERLAND -- 2.8%
13,921 Actelion Ltd* 993,967
35,999 Baloise Holding Ltd 1,165,653
2,929 Centerpulse AG* 805,159
238,699 Clariant AG* 3,238,214
2,111 Forbo Holdings AG (Registered)* 565,224
6,227 Geberit AG 2,134,133
2,058 Helvetia Patria Holding 257,149
40 Intershop Holdings AG (Bearer)* 10,853
190 Jelmoli Holding AG (Registered) 26,590
6,417 Kuoni Reisen Holdings AG (Registered) 1,757,109
44,545 Micronas Semiconductor Hold* 1,240,409
50 Motor-Columbus (Bearer) 87,466
848 Movenpick Holdings (Bearer)* 445,025
344 Pargesa Holdings SA (Bearer) 701,730
3,763 SIG Holding AG 483,624
17,405 Sulzer AG (Registered) 3,591,478
65,529 Swiss Life Holding* 7,357,420
8,934 Unaxis Holding AG 918,565
8,619 Valora Holding AG 1,661,583
51,036 Vontobel Holdings AG 956,549
13,796 ZKB Finanz Vision AG* 1,507,114
10,500 ZKB Pharma Vision AG* 897,772
--------------
30,802,786
--------------
TAIWAN -- 0.9%
346,436 Acer Inc 512,179
316,125 Asustek Computer Inc 851,440
292,000 Benq Corp 431,700
1,352,820 China Development Financial Holding Corp 506,941
1,020,075 China Steel Corp 815,272
10,720 Chunghwa Telecom Co Ltd ADR 151,366
363,055 Compal Electronics Inc 552,692
</Table>
14 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
TAIWAN -- CONTINUED
206,850 Delta Electronics Inc 272,506
454,680 Formosa Chemicals & Fibre Co 593,674
202,650 GigaByte Technology Co Ltd 415,291
34,800 Hon Hai Precision Industry Co Ltd 143,650
694,050 International Bank of Taipei 325,101
749,900 Inventec Co Ltd 456,640
90,450 MediaTek Inc 900,316
342,953 Micro-Star International Co Ltd 607,432
373,000 Nan Ya Plastic Corp 447,714
393,000 Prodisc Technology Inc* 363,569
239,800 Quanta Computer Inc 593,217
1,436,000 Waterland Financial Holdings* 372,053
520,000 Yulon Motor Co Ltd 602,846
--------------
9,915,599
--------------
THAILAND -- 0.3%
346,000 Advanced Info Service Pcl (Foreign Registered) 467,340
522,000 Bangkok Expressway Pcl (Foreign Registered)(b) 292,188
2,200,000 Charoen Pokphand Foods Pcl (Foreign Registered)(b) 283,767
2,834,400 Jasmine International Pcl (Foreign Registered)*(b) 772,579
87,700 PTT Exploration & Production Pcl (Foreign
Registered)(b) 337,226
312,500 PTT Pcl (Foreign Registered)(b) 555,184
--------------
2,708,284
--------------
TURKEY -- 0.2%
53,190,000 Aksa Akrilik Kimya Sanayii 413,605
114,183,997 Aksigorta AS 344,161
122,885,402 Arcelik AS 425,179
20,000,000 Aselsan Askeri Elektroni 137,685
105,437,570 Trakya Cam Sanayii 265,145
85,259,999 Tupras Turkiye Petrol Rafine 693,393
110,271,584 Turkiye IS Bankasi* 409,069
--------------
2,688,237
--------------
UNITED KINGDOM -- 19.7%
408,922 Aegis Group Plc 630,642
156,736 Arriva Plc 937,127
545,161 AWG Plc* 4,544,365
911,970 Barratt Developments Plc 7,486,619
</Table>
See accompanying notes to the financial statements. 15
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
459,299 BBA Group Plc 1,816,240
327,759 Berkeley Group Plc 4,611,460
516,425 Britannic Group Plc 2,144,245
244,100 British Energy Plc* 23,205
506,100 Capita Group Plc 1,931,263
824,208 Carlton Communications Plc 2,274,941
1,500 Carlton Communications Plc ADR 20,535
546,097 Cattle's Plc 3,057,813
267,047 Charter Plc (Registered)* 316,801
82,297 Close Brothers Group Plc 979,554
173,101 Cobham Group Plc 3,135,039
2,430,512 Colt Telecom Group Plc* 4,152,019
6,537,847 Cookson Group Plc* 3,490,168
8,567,509 Corus Group Plc* 4,099,376
240,096 Davis Service Group Plc 1,581,750
276,414 De La Rue Plc 1,176,116
229,954 De Vere Group Plc 1,473,105
666,559 Debenhams Plc 4,559,976
193,842 Dixons Group Plc (New Shares) 422,355
502,485 Edonis Plc* 548,416
282,884 Eidos Plc* 574,976
517,947 Electrocomponents Plc 3,113,198
102,533 Emap Plc 1,385,842
786,222 EMI Group Plc 1,924,481
49,547 Enterprise Inns Plc 667,329
314,155 Firstgroup Plc 1,427,387
1,467,362 FKI Plc 2,645,940
825,111 Friends Provident Plc 1,784,751
352,186 Great Portland Estates Plc 1,300,759
1,387,308 Hays Plc 2,523,531
376,723 IMI Plc 1,984,286
1,680,872 Imperial Chemical Industries Plc 5,157,915
201,364 Inchcape Plc 4,013,195
1,056,676 International Power Plc* 2,507,096
5,628,807 Invensys Plc 2,871,335
945,399 Kelda Group Plc 6,123,601
314,152 Laird Group 1,180,161
146,638 Liberty International Plc 1,545,911
2,250,446 LogicaCMG Plc 7,128,185
470,421 Misys Plc 2,094,609
</Table>
16 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
562,657 Morgan Crucible Co* 1,023,480
192,846 Mothercare Plc* 590,241
1,169,833 Northern Foods Plc 2,932,858
553,706 Novar Plc 1,134,193
493,455 Peninsular & Oriental Steam Navigation Co 2,007,894
168,963 Pennon Group Plc 1,552,764
461,440 Provident Financial Plc 4,663,951
133,247 RAC Plc 1,266,688
764,832 Rank Group Plc 3,432,731
355,078 RMC Group Plc 3,118,532
4,161,561 Rolls-Royce Group Plc 11,173,877
3,732,581 Royal & Sun Alliance Insurance Group 8,177,054
208,286 Schroders Plc 2,335,022
989,410 Securicor Plc 1,338,074
564,380 Severn Trent Plc 5,713,332
533,014 Shire Pharmaceuticals Plc* 4,029,994
383,908 Slough Estates Plc 2,271,102
574,456 Smith (WH) Group Plc 3,207,520
549,912 Somerfield Plc 1,117,723
2,882,212 Stagecoach Holdings Plc 3,510,383
499,171 Tate & Lyle Plc 2,791,108
1,897,975 Taylor Woodrow Plc 6,844,838
150,856 TDG Plc 490,357
4,360,162 THUS Group Plc* 2,103,489
1,257,213 Tomkins Plc 5,225,038
102,655 Travis Perkins Plc 2,037,801
343,635 Trinity Mirror Plc 2,848,174
280,959 United Business Media Plc 1,955,390
726,689 Whitbread Plc 8,580,572
345,768 Wilson (Connolly) Holdings 1,140,325
59,211 Wilson Bowden Plc 1,002,130
935,881 Wimpey (George) 5,773,286
--------------
212,757,539
--------------
TOTAL COMMON STOCKS (COST $834,728,922) 983,869,485
--------------
PREFERRED STOCKS -- 1.4%
BRAZIL -- 0.9%
3,238,000 Ambev Ciade Rebid 1.67% 716,275
</Table>
See accompanying notes to the financial statements. 17
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
BRAZIL -- CONTINUED
216,311,000 Banco Bradesco SA 1.23% 921,933
14,314,000 Banco Itau Holding Financeira SA 1,085,273
47,073,764 Brasil Telecom Participacoes SA 2.19% 357,544
57,725,000 Cia Energetica de Minas Gerais 2.88% 631,446
20,050 Compania Vale do Rio Doce, Class A 687,293
94,064,000 Electrobras, Class B (Registered) 9.83% 781,484
280,993,000 Embratel Participacoes SA* 576,980
29,400 Empresa Brasileira de Aeronautica SA ADR 599,466
930,300 Investimentos Itau SA 2.68% 889,142
362,703,000 Tele Centro Oeste Celular Participacoes SA 6.78% 737,410
64,876,582 Tele Norte Leste Participacoes SA 3.44% 845,521
22,686,000 Telemar Norte Leste SA 344,466
137,200 Usinas Siderrurgicas de Minas Gerais SA 4.57% 787,707
--------------
9,961,940
--------------
GERMANY -- 0.4%
48,100 Dyckerhoff AG (Non Voting) 11.72%* 656,944
49,679 Fresenius AG (Non Voting) 4.08% 2,482,778
35,500 Rheinmetall AG (Non Voting) 3.92% 798,607
--------------
3,938,329
--------------
ITALY -- 0.1%
94,162 IFI Istituto Finanziario Industries 4.82%* 647,162
--------------
SOUTH KOREA -- 0.0%
26,200 Hyundai Motor Co 5.05% 398,031
--------------
TOTAL PREFERRED STOCKS (COST $12,828,333) 14,945,462
--------------
SHORT-TERM INVESTMENTS -- 19.2%
CASH EQUIVALENTS -- 18.4%
$ 14,300,000 Banc One Corp, 1.00%, due 9/02/03 14,300,000
$ 53,400,000 Bank of Scotland Time Deposit, 1.03%, due 09/02/03 53,400,000
$ 131,858,029 The Boston Global Investment Trust(c) 131,858,029
--------------
199,558,029
--------------
</Table>
See accompanying notes to the financial statements.
18
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
U.S. GOVERNMENT -- 0.8%
$ 8,530,000 U.S. Treasury Bill, 0.93%, due 10/23/03(d) 8,516,910
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $208,074,939) 208,074,939
--------------
TOTAL INVESTMENTS -- 111.6%
(Cost $1,055,632,194) 1,206,889,886
Other Assets and Liabilities (net) -- (11.6%) (125,877,063)
--------------
TOTAL NET ASSETS -- 100.0% $1,081,012,823
==============
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
ADR - American Depositary Receipt
GDR - Global 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 (Note 1).
(c) Represents investment of security lending collateral (Note 1).
(d) All or a portion of this security is held as collateral for open futures
contracts (Note 6).
See accompanying notes to the financial statements. 19
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
AUGUST 31, 2003 (UNAUDITED)
At August 31, 2003, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
- --------------------------------------------------------------------
Consumer Discretionary 20.9%
Industrials 20.4
Financials 17.3
Materials 11.5
Information Technology 9.6
Consumer Staples 7.2
Health Care 4.1
Utilities 3.5
Energy 3.2
Telecommunication Services 2.3
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements.
20
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$123,196,738 (cost $1,055,632,194) (Note 1) $1,206,889,886
Cash 92,190
Foreign currency, at value (cost $1,374,716) (Note 1) 1,856,157
Receivable for investments sold 695,534
Receivable for Fund shares sold 3,660,000
Dividends and interest receivable 1,182,611
Foreign taxes receivable 264,137
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 3,586,412
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 376,795
Receivable for closed forward foreign currency contracts
(Note 1) 805,367
Receivable for expenses reimbursed by Manager (Note 2) 97,464
--------------
Total assets 1,219,506,553
--------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 131,858,029
Payable for Fund shares repurchased 1,500,000
Payable to affiliate for (Note 2):
Management fee 513,393
Shareholder service fee 128,348
Payable for open forward foreign currency contracts
(Notes 1 and 6) 4,349,231
Accrued expenses 144,729
--------------
Total liabilities 138,493,730
--------------
NET ASSETS $1,081,012,823
==============
NET ASSETS CONSIST OF:
Paid-in capital $ 927,445,759
Accumulated undistributed net investment income 6,238,360
Accumulated net realized loss (9,178,320)
Net unrealized appreciation 156,507,024
--------------
$1,081,012,823
==============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $1,081,012,823
==============
SHARES OUTSTANDING:
Class III 80,818,806
==============
NET ASSET VALUE PER SHARE:
Class III $ 13.38
==============
</Table>
See accompanying notes to the financial statements. 21
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $1,504,987) $ 13,426,621
Interest (including securities lending income of
$946,906) 1,246,284
------------
Total income 14,672,905
------------
EXPENSES:
Management fee (Note 2) 2,292,806
Custodian fees 403,393
Audit fees 29,624
Transfer agent fees 15,456
Legal fees 12,144
Trustees fees and related expenses (Note 2) 6,693
Registration fees 2,392
Miscellaneous 37,206
Fees reimbursed by Manager (Note 2) (500,215)
------------
2,299,499
Shareholder service fee (Note 2) - Class III 573,201
------------
Net expenses 2,872,700
------------
Net investment income 11,800,205
------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 14,538,801
Closed futures contracts 3,628,073
Foreign currency, forward contracts and foreign
currency related transactions 5,592,872
------------
Net realized gain 23,759,746
------------
Change in net unrealized appreciation (depreciation) on:
Investments 225,706,820
Open futures contracts 6,992,966
Foreign currency, forward contracts and foreign
currency related transactions (5,945,478)
------------
Net unrealized gain 226,754,308
------------
Net realized and unrealized gain 250,514,054
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $262,314,259
============
</Table>
22 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 11,800,205 $ 7,374,295
Net realized gain (loss) 23,759,746 (15,797,524)
Change in net unrealized appreciation (depreciation) 226,754,308 (45,208,858)
-------------- ------------
Net increase (decrease) in net assets from
operations 262,314,259 (53,632,087)
-------------- ------------
Distributions to shareholders from:
Net investment income
Class III (5,475,359) (15,340,291)
-------------- ------------
Net share transactions (Note 5):
Class III 287,525,669 352,008,250
-------------- ------------
Net increase in net assets resulting from Fund share
transactions 287,525,669 352,008,250
-------------- ------------
Total increase in net assets 544,364,569 283,035,872
NET ASSETS:
Beginning of period 536,648,254 253,612,382
-------------- ------------
End of period (including accumulated undistributed
net investment income of $6,238,360 and
distributions in excess of net investment income of
$86,486, respectively) $1,081,012,823 $536,648,254
============== ============
</Table>
See accompanying notes to the financial statements. 23
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ----------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.50 $ 10.44 $ 11.68 $ 11.54 $ 11.02 $ 12.22
---------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.15 0.15 0.22 0.23 0.25 0.55
Net realized and unrealized gain
(loss) 3.80 (0.80) (1.11) 1.02 0.83 (1.15)
---------- -------- -------- -------- -------- --------
Total from investment operations 3.95 (0.65) (0.89) 1.25 1.08 (0.60)
---------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.07) (0.29) (0.35) (0.25) (0.15) (0.21)
From net realized gains -- -- (0.00)(c) (0.86) (0.41) (0.39)
---------- -------- -------- -------- -------- --------
Total distributions (0.07) (0.29) (0.35) (1.11) (0.56) (0.60)
---------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 13.38 $ 9.50 $ 10.44 $ 11.68 $ 11.54 $ 11.02
========== ======== ======== ======== ======== ========
TOTAL RETURN(a) 41.68%** (6.30)% (7.57)% 11.09% 9.62% (5.06)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $1,081,013 $536,648 $253,612 $187,093 $173,362 $158,142
Net expenses to average daily net
assets 0.75%* 0.75% 0.75% 0.75% 0.75% 0.75%
Net investment income to average
daily net assets 3.09%* 1.65% 2.02% 2.05% 2.19% 1.67%
Portfolio turnover rate 25%** 44% 34% 60% 55% 8%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.13%* 0.17% 0.22% 0.22% 0.24% 0.81%
Purchase and redemption fees
consisted of the following per
share amounts:(b) $ 0.03 $ 0.06 $ 0.05 $ 0.04 -- --
</Table>
* Annualized.
** Not Annualized.
(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.
(b) Effective March 1, 2000 the Fund adopted the provisions of the revised
AICPA Audit and Accounting Guide for Investment Companies which requires
the disclosure of the per share effect of purchase and redemption fees.
Periods prior to March 1, 2000 have not been restated to reflect this
change. Amounts calculated using average shares outstanding throughout
the period.
(c) The distribution from net realized gains was less than $.01 per share.
24 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO International Small Companies Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund seeks high total return through investment in equity securities
of non-U.S. issuers. The Fund's benchmark is the Citigroup (f/k/a Salomon
Smith Barney) Extended Market Index ("EMI") World ex-U.S. Index.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of mutual funds are valued at their net asset value as reported on
each business day. 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.
25
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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 6, and represents the
currency exposure the Fund has acquired or hedged through currency
contracts as of August 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
26
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for all
open futures contracts as of August 31, 2003.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
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.
27
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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 the price of the security or index underlying these
transactions. At August 31, 2003, there were no open swap agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of collateral, the risk of delay in recovery or
loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund loaned securities having a market
value of $123,196,738 collateralized by cash in the amount of
$131,858,029, which was invested in a short-term instrument.
28
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 carryover for
U.S. federal income tax purposes. Therefore, no provision for U.S. federal
income or excise tax is necessary. Taxes on foreign interest and dividend
income 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests.
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.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code of $6,078,276 and $20,471,179 expiring in 2010 and 2011,
respectively. The Fund has elected to defer to March 1, 2003 post-October
capital losses of $5,992,691.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later.
Interest income is recorded on the accrual basis and is adjusted for the
amortization of premiums and discounts. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
29
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is 0.60% of the amount
invested. In the case of cash redemptions, the fee is .60% of the amount
redeemed. If the Manager determines that any portion of a cash purchase or
redemption is offset by a corresponding cash redemption or purchase
occurring on the same day, the purchase premium or redemption fee charged
by the Fund will be reduced by 100% with respect to that portion. In
addition, the purchase premium or redemption fee charged by the Fund may
be waived if the Manager determines the Fund is either substantially
overweighted or underweighted in cash so that a redemption or purchase
will not require a securities transaction. All purchase premiums and
redemption fees are paid to and recorded by the Fund as paid-in capital.
For the six months ended August 31, 2003 and the year ended February 28,
2003, the Fund received $1,731,523 and $2,531,977 in purchase premiums and
$32,283 and $54,833 in redemption fees, respectively. There is no premium
for reinvested distributions.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .60% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage
30
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
commissions and other investment-related costs, hedging transaction fees,
extraordinary, non-recurring and certain other unusual expenses (including
taxes), securities lending fees and expenses, interest expense and
transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $4,945. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $434,445,501 and $174,166,272, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$1,055,954,069 $180,595,300 $(29,659,483) $150,935,817
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 29.0% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the outstanding
shares of the Fund. Investment activities of these shareholders may have a
material effect on the Fund.
31
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ ------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ---------- ------------
Shares sold 28,910,829 $339,075,335 36,029,447 $390,124,687
Shares issued to shareholders
in reinvestment of distributions 233,759 2,914,975 769,131 7,538,961
Shares repurchased (4,794,267) (54,464,641) (4,627,128) (45,655,398)
---------- ------------ ---------- ------------
Net increase 24,350,321 $287,525,669 32,171,450 $352,008,250
========== ============ ========== ============
</Table>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- -------------- ----------- --------------
Buys
10/31/03 AUD 14,799,138 $ 9,520,938 $ 475,979
10/31/03 CAD 45,850,331 32,957,852 1,195,009
9/26/03 CHF 45,146,308 32,253,227 (461,260)
9/26/03 DKK 152,814,300 22,578,379 473,942
9/26/03 EUR 35,699,193 39,168,286 501,944
9/26/03 GBP 6,291,643 9,936,249 57,047
10/31/03 HKD 38,157,820 4,892,375 8,512
10/31/03 JPY 2,296,169,525 19,717,612 324,290
9/26/03 NOK 229,940,398 30,637,006 (474,465)
10/31/03 NZD 3,947,663 2,263,446 97,679
9/26/03 SEK 138,072,140 16,494,609 (109,793)
10/31/03 SGD 11,892,615 6,786,767 51,832
-----------
$ 2,140,716
===========
</Table>
32
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS -- CONTINUED
<Table>
<Caption>
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- -------------- ----------- --------------
Sales
10/31/03 AUD 22,833,880 $14,690,041 $ (400,666)
10/31/03 CAD 22,855,744 16,429,025 (822,597)
9/26/03 CHF 16,581,162 11,845,841 204,488
9/26/03 DKK 28,938,170 4,275,627 (151,036)
9/26/03 EUR 25,482,766 27,959,071 (954,885)
9/26/03 GBP 25,977,678 41,025,956 83,742
10/31/03 HKD 104,574,282 13,407,910 (24,678)
10/31/03 JPY 4,342,495,601 37,289,776 (719,094)
9/26/03 NOK 14,841,173 1,977,421 (5,697)
10/31/03 NZD 3,904,526 2,238,712 (109,042)
9/26/03 SEK 22,697,948 2,711,581 (116,018)
10/31/03 SGD 12,070,100 6,888,053 111,948
-----------
$(2,903,535)
===========
</Table>
CURRENCY ABBREVIATIONS:
<Table>
AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
DKK - Danish Krona
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
</Table>
33
<Page>
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
<Table>
<Caption>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
--------- ------------- ------------------ -------------- --------------
Buys
34 DAX September 2003 $ 3,257,387 $ 20,306
44 FTSE 100 September 2003 2,903,935 66,148
421 MSCI September 2003 9,429,209 21,258
3 OMX September 2003 21,106 (167)
597 TSE TOPIX September 2003 51,293,495 5,883,355
----------
$5,990,900
==========
Sales
296 SPI 200 September 2003 15,312,511 $ (454,656)
----------
$ (454,656)
==========
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
34
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 19.0%
BULGARIA -- 1.8%
USD 10,000,000 Bulgaria Discount Strips, 0.00%, due 07/28/24(a) 2,712,536
------------
CANADA -- 3.0%
CAD 2,000,000 Province of British Columbia, 7.88%, due 11/30/23 1,798,652
GBP 1,500,000 Province of Quebec, 8.63%, due 11/04/11 2,917,380
------------
4,716,032
------------
CAYMAN ISLANDS -- 4.6%
CAD 2,000,000 Government of Canada (Cayman), 7.25%, due 06/01/08 1,611,938
EUR 5,000,000 MBNA America Euro Structured Offering,
Variable Rate, 3 mo. EURIBOR + .14%, 2.56%,
due 05/19/04 5,489,500
------------
7,101,438
------------
JAPAN -- 0.7%
USD 1,030,000 Japan Highway Public Corp, 7.63%, due 09/22/04 1,093,860
------------
SUPRA NATIONAL -- 0.4%
CAD 700,000 European Investment Bank, 8.50%, due 08/30/05 553,076
------------
UNITED STATES -- 8.5%
ASSET-BACKED SECURITIES -- 5.3%
USD 1,931,704 Medallion Trust Series 03-1G Class A,
Variable Rate, 3 mo. LIBOR + .19%, 1.22%,
due 12/21/33 1,932,728
GBP 2,000,000 RMAC Series 03-NS1A Class A2A, 144A,
Variable Rate, 3 mo. GBP LIBOR + .45%, 1.63%,
due 06/12/35 3,165,082
GBP 2,000,000 RMAC Series 03-NS2A Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .40%, 4.04%,
due 09/12/35 3,163,500
------------
8,261,310
------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------
U.S. GOVERNMENT -- 3.2%
USD 4,547,840 U.S. Treasury Inflation Indexed Note, 3.63%, due
01/15/08(b) 5,006,177
------------
Total United States 13,267,487
------------
TOTAL DEBT OBLIGATIONS (COST $27,537,366) 29,444,429
------------
MUTUAL FUNDS -- 78.7%
619,387 GMO Alpha LIBOR Fund 14,964,395
407,540 GMO Emerging Country Debt Fund, Class III 4,368,827
4,077,942 GMO Short-Duration Collateral Fund 102,804,926
------------
TOTAL MUTUAL FUNDS (COST $121,736,272) 122,138,148
------------
<Caption>
PRINCIPAL
AMOUNT
-------------
CALL OPTIONS PURCHASED -- 0.2%
CROSS CURRENCY OPTIONS -- 0.2%
GBP 8,000,000 GBP Call/JPY Put, Expires 01/23/04, Strike 184.00 264,352
------------
TOTAL CALL OPTIONS PURCHASED (COST $478,820) 264,352
------------
PUT OPTIONS PURCHASED -- 1.0%
CROSS CURRENCY OPTIONS -- 1.0%
EUR 44,300,000 EUR Put/USD Call, Expires 10/1/03, Strike 1.1150 1,314,202
GBP 17,400,000 GBP Put/USD Call, Expires 11/6/03, Strike 1.545 209,999
------------
1,524,201
------------
TOTAL PUT OPTIONS PURCHASED (COST $753,549) 1,524,201
------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.9%
CASH EQUIVALENTS -- 0.9%
USD 1,465,589 Merrimac Cash Fund 1,465,589
------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,465,589) 1,465,589
------------
TOTAL INVESTMENTS -- 99.8%
(Cost $151,971,596) 154,836,719
Other Assets and Liabilities (net) -- 0.2% 347,089
------------
TOTAL NET ASSETS -- 100.0% $155,183,808
============
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
<Table>
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
Variable rates - The rates shown on variable rate notes are the
current interest rates at August 31, 2003, which are subject
to change based on the terms of the security.
CURRENCY ABBREVIATIONS:
AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - British Pound
JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollars
SEK - Swedish Krona
USD - United States Dollar
</Table>
(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 has been segregated to cover margin
requirements on open financial futures contracts and open swap contracts
(Note 6).
See accompanying notes to the financial statements. 3
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $151,971,596) (Note 1) $154,836,719
Receivable for Fund shares sold 650,000
Interest receivable 947,388
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 2,177,016
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 139,727
Net receivable for open swap contracts (Notes 1 and 6) 1,819,732
Receivable for expenses reimbursed by Manager (Note 2) 14,493
------------
Total assets 160,585,075
------------
LIABILITIES:
Due to custodian 103,333
Payable to affiliate for (Note 2):
Management fee 32,496
Shareholder service fee 19,498
Payable for open forward foreign currency contracts
(Notes 1 and 6) 475,857
Payable for closed forward foreign currency contracts
(Note 1) 4,623,214
Net payable for closed swap contracts (Notes 1 and 6) 104,707
Accrued expenses 42,162
------------
Total liabilities 5,401,267
------------
NET ASSETS $155,183,808
============
NET ASSETS CONSIST OF:
Paid-in capital $150,723,197
Accumulated undistributed net investment income 664,180
Accumulated net realized loss (2,341,227)
Net unrealized appreciation 6,137,658
------------
$155,183,808
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $155,183,808
============
SHARES OUTSTANDING:
Class III 16,435,952
============
NET ASSET VALUE PER SHARE:
Class III $ 9.44
============
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest $1,099,909
Dividends from investment company shares 404,963
----------
Total income 1,504,872
----------
EXPENSES:
Management fee (Note 2) 176,533
Custodian and transfer agent fees 36,986
Audit fees 24,748
Registration fees 3,772
Legal fees 3,496
Trustees fees and related expenses (Note 2) 1,560
Miscellaneous 1,196
Fees reimbursed by Manager (Note 2) (69,370)
----------
178,921
Indirectly incurred fees waived or borne by Manager (Note
2) (9,749)
----------
169,172
----------
Shareholder service fee (Note 2) -
Class III 105,932
Shareholder service fee waived (Note 2) -
Class III (3,403)
----------
102,529
----------
Net expenses 271,701
----------
Net investment income 1,233,171
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 487,820
Realized gains distributions from investment company
shares 127,647
Closed futures contracts 598,733
Closed swap contracts (795,001)
Written options 107,910
Foreign currency, forward contracts and foreign
currency related transactions 1,969,705
----------
Net realized gain 2,496,814
----------
Change in net unrealized appreciation (depreciation) on:
Investments 1,222,324
Open futures contracts (254,658)
Open swap contracts (293,296)
Foreign currency, forward contracts and foreign
currency related transactions 1,207,987
----------
Net unrealized gain 1,882,357
----------
Net realized and unrealized gain 4,379,171
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,612,342
==========
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,233,171 $ 3,226,184
Net realized gain 2,496,814 16,646,248
Change in net unrealized appreciation (depreciation) 1,882,357 11,029,934
------------ ------------
Net increase in net assets from operations 5,612,342 30,902,366
------------ ------------
Distributions to shareholders from:
Net investment income
Class III -- (15,448,356)
------------ ------------
Total distributions from net investment income -- (15,448,356)
------------ ------------
Net realized gains
Class III (13,545,144) --
------------ ------------
Total distributions from net realized gains (13,545,144) --
------------ ------------
Net share transactions (Note 5):
Class III 40,596,107 (27,981,311)
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions 40,596,107 (27,981,311)
------------ ------------
Total increase (decrease) in net assets 32,663,305 (12,527,301)
NET ASSETS:
Beginning of period 122,520,503 135,047,804
------------ ------------
End of period (including accumulated
undistributed net investment income of $664,180
and distributions in excess of net investment
income of $568,991, respectively) $155,183,808 $122,520,503
============ ============
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2003 -----------------------------------------------------------------------
(UNAUDITED) 2003 2002 2001(D) 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.94 $ 9.05 $ 9.44 $ 9.19 $ 10.06 $ 10.45
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.09(a)+ 0.24(a)+ 0.45(a)+ 0.63(a)+ 0.70(a) 0.71
Net realized and unrealized gain
(loss) 0.40 1.96 (0.81) (0.34) (0.99) (0.42)
-------- -------- -------- -------- -------- --------
Total from investment
operations 0.49 2.20 (0.36) 0.29 (0.29) 0.29
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income -- (1.31) (0.03) -- (0.39) (0.45)
From net realized gains (0.99) -- -- (0.04) (0.19) (0.23)
-------- -------- -------- -------- -------- --------
Total distributions (0.99) (1.31) (0.03) (0.04) (0.58) (0.68)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.44 $ 9.94 $ 9.05 $ 9.44 $ 9.19 $ 10.06
======== ======== ======== ======== ======== ========
TOTAL RETURN(b) 4.70%** 25.17% (3.80)% 3.20% (2.98)% 2.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $155,184 $122,521 $135,048 $212,591 $145,373 $181,829
Net operating expenses to average
daily net assets 0.38%*(e) 0.38%(e) 0.38%(e) 0.39%(e) 0.40% 0.40%
Interest expense to average daily
net assets -- -- -- -- 0.03%(c) --
Total net expenses to average
daily net assets 0.38%*(e) 0.38% 0.38% 0.39% 0.43% 0.40%
Net investment income to average
daily net assets 1.75%*(a) 2.40%(a) 4.85%(a) 6.82%(a) 6.51%(a) 6.45%
Portfolio turnover rate 14%** 40% 36% 114% 39% 106%
Fees and expenses reimbursed by
the Manager to average daily
net assets: 0.12%* 0.11% 0.11% 0.04% 0.98% 0.24%
</Table>
(a) Net investment income is affected by the timing of the declaration of
dividends by other Funds of the Trust in which the Fund invests.
(b) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(c) Interest expense incurred as a result of entering into reverse
repurchase agreements is included in the Fund's net expenses. Income
earned on investing proceeds from reverse repurchase agreements is
included in interest income.
(d) 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 for
the year ended February 28, 2001 was to decrease net investment income
per share by $0.01, increase net realized and unrealized gains and
losses per share by $0.01 and decrease the ratio of net investment
income to average net assets from 6.97% to 6.82%. Per share and
ratios/supplemental data for periods prior to March 1, 2000 have not
been restated to reflect this change.
(e) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 2.
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
See accompanying notes to the financial statements. 7
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO International Bond Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund seeks high total return through direct and indirect investment in
foreign bond and currency markets, primarily by investing in GMO
Short-Duration Collateral Fund and "synthetic" bonds (created by the
Manager by combining a futures contract, swap contract, or option, on a
fixed income security with cash, a cash equivalent, or another fixed
income security). The Fund's benchmark is the J.P. Morgan Non-U.S.
Government Bond Index.
At August 31, 2003, 66.3% of the Fund was invested in the GMO
Short-Duration Collateral Fund and 9.6% of the Fund was invested in the
GMO Alpha LIBOR Fund, separate funds of GMO Trust managed by GMO. Shares
of the GMO Alpha LIBOR Fund and the GMO Short-Duration Collateral Fund are
not publicly available for direct purchase. At August 31, 2003, 2.8% of
the net assets of the Fund was invested in the GMO Emerging Country Debt
Fund, a separate fund of GMO Trust managed by GMO. The financial
statements of the GMO Alpha LIBOR Fund, the GMO Short-Duration Collateral
Fund and the GMO Emerging Country Debt Fund should be read in conjunction
with the Fund's financial statements.
In November 2002, certain bonds ("NPF bonds") held by GMO Alpha LIBOR Fund
("Alpha LIBOR Fund"), in which the Fund had significant investments,
defaulted amid allegations of fraud and significant violations of the
bonds' indentures. Currently, no market exists for the NPF bonds, and they
are being valued at fair value by the trustees of GMO Trust or persons
acting at their direction. The devaluation of the NPF bonds had a negative
impact on the Fund's net asset value per share.
In late November 2002, Alpha LIBOR Fund undertook a reorganization
transaction with a new series of GMO Trust, GMO Short-Duration Collateral
Fund ("SDCF") and approximately 78% of the Fund's interest in Alpha LIBOR
Fund was transferred to SDCF in exchange for SDCF shares. The
reorganization was treated as a sale of the Alpha LIBOR Fund shares for
financial reporting purposes and a distribution by Alpha LIBOR Fund for
tax purposes. Accordingly, for financial reporting purposes, the Fund
recognized a loss on the sale of the Alpha LIBOR shares of approximately
$17,424,200. In addition, the Fund recognized for tax, but not for
financial reporting
8
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
purposes, ordinary income of $6,635,832 and long-term capital gains of
$1,183,564 from Alpha LIBOR Fund. $25,243,596 was added to the tax cost
basis of the Fund's holdings of Alpha LIBOR Fund.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of other funds of the Trust ("underlying funds") and other mutual
funds are valued at their net asset value as reported on each business
day. 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.
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.
9
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Certain securities held by the Fund, or underlying Funds in which it
invests, were valued on the basis of a price provided by a principal
market maker. The prices provided by the principal market maker may differ
from the value that would be realized if the securities were sold and the
differences could be material to the financial statements.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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 6 and represents the currency
exposure the Fund has acquired or hedged through forward currency
contracts as of August 31, 2003.
10
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for
all open futures contracts as of August 31, 2003.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the
11
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
proceeds on the closing transaction to determine the realized gain or
loss. The risk associated with purchasing put and call options is limited
to the premium paid. See the Schedule of Investments for all open
purchased option contracts as of August 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 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
12
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. The Fund also may enter into structured
warrants, which are derivatives like swaps and have risks similar to
swaps. 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 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 6 for a summary of open swap agreements as of August 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.
13
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
In connection with transactions in repurchase agreements, if the seller
defaults or enters into insolvency proceedings and the value of the
collateral declines, recovery of cash by the Fund may be delayed or
limited.
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. The market value of the securities the Fund has sold is
determined daily and any additional required collateral is allocated to or
sent by the fund on the next business day. For the six months ended
August 31, 2003, the Fund did not enter into any reverse repurchase
agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of the collateral, the risk of delay in recover
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 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 interest and 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 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.
14
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
The Fund elected to defer to March 1, 2003 post-October losses of
$4,511,190.
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 the accrual basis, and is adjusted for the amortization of
premium and discounts. Dividend income is recorded on the ex-dividend
date. Non-cash dividends, if any, are recorded at the fair market value of
the securities received. Interest income on inflation indexed securities
is accrued daily based upon an inflation adjusted principal. Additionally,
any increase in the principal or face amount of these securities is
recorded as interest income. In determining the net gain or loss on
securities sold, the cost of securities is determined on the identified
cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets. The risks described above apply to an even greater
extent to investments in emerging markets. The securities markets of
emerging countries are generally smaller, less developed, less liquid, and
more volatile than the securities markets of the U.S. and developed
foreign markets.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .25% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net
15
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
assets at the annual rate of .15% for Class III shares. The Fund may
invest in Class III shares of GMO Emerging Country Debt Fund ("ECDF").
Like the management fee (as described below), the Fund's shareholder
service fee will be waived (but not below zero) to the extent of the
indirect shareholder service fees paid in connection with the Fund's
investment in ECDF. The Fund does not incur any indirect shareholder
service fees as a result of the Fund's investment in Alpha LIBOR Fund and
SDCF.
GMO has entered into a binding agreement effective until at least
June 30, 2004, to reimburse the Fund to the extent that the Fund's total
direct annual operating expenses plus the amount of indirect fees and
operating expenses incurred through its investment in underlying funds
exceed the management fee. For purposes of this calculation, the Fund's
total direct annual operating expenses excludes shareholder service fees,
fees and expenses of the independent Trustees of the Trust (including
legal fees) ("Trustees fees"), and the following investment-related costs:
brokerage commissions, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses, interest expense and transfer taxes.
Additionally, the indirect fees and operating expenses incurred through
investment in underlying funds excludes investment-related expenses and,
with the exception of the Fund's investment in ECDF, Trustees fees.
The Fund incurs fees and expenses indirectly as a shareholder in Alpha
LIBOR Fund, SDCF and ECDF. For the six months ended August 31, 2003,
operating expenses (excluding shareholder service fees (ECDF only) and
investment-related expenses) and investment-related expenses (including,
but not limited to, interest expense, foreign audit expense, and
investment-related legal expense) incurred indirectly by the Fund through
its investment in underlying funds were .019% (annualized) and .010%
(annualized) of the Fund's average daily net assets, respectively. For the
six months ended August 31, 2003, the shareholder service fees incurred
indirectly by the Fund were .005% (annualized) of the Fund's average daily
net assets.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003, was $1,100. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $53,360,110 and $19,096,902, respectively.
16
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
At August 31, 2003, the approximate 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
-------------- ---------------- ---------------- --------------
$160,672,496 $-- $(5,835,777) $(5,835,777)
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 63.6% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
---------------------- ------------------------
Shares Amount Shares Amount
Class III: --------- ----------- ---------- ------------
Shares sold 3,347,326 $33,890,000 1,695,024 $ 17,095,583
Shares issued to shareholders in reinvestment
of distributions 1,405,098 13,545,144 1,459,236 13,731,415
Shares repurchased (637,474) (6,839,037) (5,748,110) (58,808,309)
--------- ----------- ---------- ------------
Net increase (decrease) 4,114,950 $40,596,107 (2,593,850) $(27,981,311)
========= =========== ========== ============
</Table>
17
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- -------------- ----------- --------------
Buys
10/16/03 AUD 18,600,000 $11,985,387 $ (9,293)
10/23/03 CAD 4,800,000 3,451,909 31,035
9/11/03 CHF 6,700,000 4,784,901 (123,148)
11/13/03 EUR 91,100,000 99,813,405 894,292
9/02/03 GBP 5,400,000 8,541,450 (114,518)
11/06/03 GBP 13,500,000 21,259,926 105,156
9/25/03 JPY 5,940,000,000 50,946,060 1,046,109
10/09/03 NZD 12,700,000 7,299,865 (42,767)
----------
$1,786,866
==========
Sales
10/23/03 CAD 10,400,000 $ 7,479,136 $ (72,520)
9/02/03 GBP 5,400,000 8,541,450 (42,930)
9/25/03 JPY 110,000,000 943,446 (8,834)
----------
$ (124,284)
==========
</Table>
<Table>
<Caption>
FORWARD CROSS CURRENCY CONTRACTS
Net Unrealized
Settlement Deliver/Units of Receive/In Appreciation
Date Currency Exchange For (Depreciation)
---------- ----------------- ---------------- --------------
9/18/03 CHF 30,364,785 EUR 19,800,000 $ 39,182
10/02/03 EUR 6,700,000 NOK 54,716,555 (61,847)
10/30/03 EUR 15,200,000 SEK 140,169,829 61,242
--------
$ 38,577
========
</Table>
18
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
<Table>
<Caption>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- ------------------------------------- ------------------ ------------ --------------
Buys
37 Australian Government Bond 10 Yr. September 2003 $2,485,992 $ (64,308)
78 Australian Government Bond 3 Yr. September 2003 5,172,069 (69,655)
14 Euro BOBL September 2003 1,709,364 (5,808)
14 Euro BOBL December 2003 1,695,377 1,600
29 Euro Bund September 2003 3,638,572 (11,091)
28 Euro Bund December 2003 3,485,130 4,429
6 Japanese Government Bond 10 Yr. September 2003 7,065,478 (209,081)
1 Swiss Government Bond September 2003 92,142 (2,585)
7 U.S. Long Bond December 2003 742,000 11,499
11 U.S. Treasury Note 10 Yr. December 2003 1,206,906 9,475
---------
$(335,525)
=========
Sales
7 Canadian Government Bond 10 Yr. December 2003 $ 543,539 $ (3,427)
70 U.S. Treasury Note 5 Yr. December 2003 7,690,156 (27,746)
52 UK Gilt Long Bond December 2003 9,669,428 (10,206)
---------
$ (41,379)
=========
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
WRITTEN OPTIONS TRANSACTIONS
<Table>
<Caption>
Puts Calls
----------------------------- -----------------------------
Principal Amount Principal Amount
of Contracts of Contracts
(000's omitted) Premiums (000's omitted) Premiums
---------------- ----------- ---------------- -----------
Outstanding, beginning of period -- $ -- -- $ --
Options written 10,900 107,910 10,900 107,910
Options closed -- -- -- --
Options exercised -- -- (10,900) (107,910)
Options expired (10,900) (107,910) -- --
Options sold -- -- -- --
------------ -------- ------------ --------
Outstanding, end of period -- $ -- -- $ --
============ ======== ============ ========
</Table>
19
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<Table>
<Caption>
Notional Net Unrealized
Amount Expiration Appreciation
Fund Date Description (Depreciation)
--------------- ---------- -------------------------------------------------- --------------
INTEREST RATE SWAPS
20,000,000 EUR 3/21/05 Agreement with UBS AG dated 3/17/00 to receive the $1,024,744
notional amount multiplied by 5.222% and to pay
the notional amount multiplied by the 3 month
Floating Rate EURIBOR adjusted by a specified
spread.
9,000,000 GBP 6/30/05 Agreement with Citibank N.A. dated 6/30/03 to pay 326,144
the notional amount multiplied by 3.6675% and to
receive the notional amount multiplied by the 6
month Floating Rate British LIBORadjusted by a
specified spread.
14,800,000 USD 7/02/05 Agreement with Deutsche Bank AG dated 6/30/03 to (201,161)
receive the notional amount multiplied by 1.55%
and to pay the notional amount multiplied by the 3
month LIBOR adjusted by a specified spread.
21,600,000 CAD 7/31/05 Agreement with Deutsche Bank AG dated 7/31/03 to 37,998
pay the notional amount multiplied by 3.145% and
to receive the notional amount multiplied by the 3
month Floating Rate Canadian CDOR adjusted by a
specified spread.
15,400,000 USD 8/04/05 Agreement with Goldman Sachs International dated (54,702)
7/31/03 to receive the notional amount multiplied
by 1.975% and to pay the notional amount
multiplied by the 3 month LIBOR adjusted by a
specified spread.
</Table>
20
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Notional Net Unrealized
Amount Expiration Appreciation
Fund Date Description (Depreciation)
--------------- ---------- -------------------------------------------------- --------------
INTEREST RATE SWAPS -- CONTINUED
14,100,000 EUR 9/01/05 Agreement with Citibank N.A. dated 8/28/03 to pay $ (57,153)
the notional amount multiplied by 2.82% and to
receive the notional amount multiplied by the 6
month Floating Rate EURIBOR adjusted by a
specified spread.
15,600,000 USD 9/02/05 Agreement with JP Morgan Chase Bank dated 8/28/03 6,318
to receive the notional amount multiplied by 2.25%
and to pay the notional amount multiplied by the 3
month LIBOR adjusted by a specified spread.
600,000 CHF 4/02/08 Agreement with Citibank N.A. dated 3/31/03 to (4,212)
receive the notional amount multiplied by 1.885%
and to pay the notional amount multiplied by the 6
month Floating Rate Swiss LIBOR adjusted by a
specified spread.
600,000 CHF 4/02/13 Agreement with Citibank N.A. dated 4/02/03 to (9,878)
receive the notional amount multiplied by 2.71%
and to pay the notional amount multiplied by the 6
month Floating Rate Swiss LIBOR adjusted by a
specified spread.
3,109,769 USD 7/28/24 Agreement with JP Morgan Chase Bank dated 9/20/02 313,600
to pay the $10,000,000 at expiration date and to
receive at expiration date $3,090,000 plus
interest based upon the 3 month Floating Rate
LIBOR (compounded quarterly) adjusted by a
specified spread.
</Table>
21
<Page>
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Notional Net Unrealized
Amount Expiration Appreciation
Fund Date Description (Depreciation)
--------------- ---------- -------------------------------------------------- --------------
INTEREST RATE SWAPS -- CONTINUED
5,000,000 EUR 3/21/30 Agreement with UBS AG dated 3/17/00 to receive the $ 707,835
notional amount multiplied by 5.895% and to pay
the notional amount multiplied by the 3 month
Floating Rate EURIBOR adjusted by a specified
spread.
TOTAL RETURN SWAPS
33,000,000 USD 7/21/04 Agreement with JP Morgan Chase Bank dated 7/01/03 (55,392)
to receive (pay) the notional amount multiplied by
the return on the JP Morgan Non-U.S. Traded Total
Return Government Bond Index, hedged in U.S.
dollars and to pay the notional amount multiplied
by the 1 month LIBOR adjusted by a specified
spread.
33,000,000 USD 7/21/05 Agreement with JP Morgan Chase Bank dated 7/01/03 (55,365)
to receive (pay) the notional amount multiplied by
the return on the JP Morgan Non-U.S. Traded Total
Return Government Bond Index, hedged in U.S.
dollars and to pay the notional amount multiplied
by the 1 month LIBOR adjusted by a specified
spread.
----------
$1,978,776
==========
</Table>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
22
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
COMMON STOCKS -- 79.5%
ARGENTINA -- 1.5%
760,000 BBVA Banco Frances SA ADR* 3,822,800
3,160,118 Grupo Financiero Galicia SA ADR* 12,798,478
180,500 IRSA Inversiones y Representaciones SA GDR* 1,530,640
3,116,850 Petrobras Energia Participaciones SA ADR* 23,376,375
2,113,350 Telecom Argentina SA ADR* 12,236,296
326,998 Tenaris SA ADR 8,250,160
-------------
62,014,749
-------------
BRAZIL -- 4.1%
4,148,463,500 Banco do Brasil SA 21,575,933
4,500 Brasil Telecom Participacoes SA ADR 170,550
1,901,375,595 Companhia Siderurgica Nacional SA 63,892,898
143,652,000 Compania Saneamento Basico SAO PA 6,282,652
1,854,333,000 Electrobras 13,777,550
683,900 Petroleo Brasileiro SA (Petrobras) 15,174,681
200,000 Petroleo Brasileiro SA (Petrobras) ADR 4,420,000
2,509,204 Souza Cruz (Registered) 19,956,688
832,712,688 Tele Norte Leste Participacoes SA 7,984,030
295,250 Vale Do Rio Doce 11,048,193
-------------
164,283,175
-------------
CHILE -- 0.5%
22,000 AFP Provida SA ADR 523,600
189,000 Banco Santander Chile SA ADR 3,959,550
84,800 Cristalerias de Chile SA ADR 2,505,840
138,200 Embotelladora Andina SA ADR 1,100,072
1,489,381 Enersis SA ADR 7,968,188
128,100 Masisa SA ADR 942,816
454,700 Quinenco SA ADR* 3,091,960
-------------
20,092,026
-------------
CHINA -- 9.8%
27,126,000 Angang New Steel Co, Class H 9,390,552
30,318,000 Brilliance China Automotive Holdings Ltd 9,620,936
64,015,000 China Eastern Airlines Corp Ltd, Class H* 10,177,592
38,514,000 China Everbright Ltd 18,888,247
4,188,000 China Insurance International Holdings Co Ltd 2,295,537
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
CHINA -- CONTINUED
17,619,000 China Mobile Ltd 45,293,640
284,800 China Mobile Ltd ADR 3,693,856
126,671,000 China Petroleum & Chemical Corp, Class H 38,572,910
6,485,000 China Resources Enterprise Ltd 6,277,671
28,030,000 China Unicom 19,766,391
398,800 China Unicom ADR 2,859,396
11,350,940 Chongqing Changan Automobile Co Ltd, Class B 9,474,459
11,696,000 CNOOC Ltd 21,744,376
52,000 CNOOC Ltd ADR 1,964,560
13,619,000 Cosco Pacific Ltd 15,191,689
18,160,400 Denway Motors Ltd 10,245,182
45,600,000 First Pacific Co* 7,425,234
59,048,000 Guangdong Investments Ltd* 10,826,369
14,724,000 Guangshen Railway Co, Class H 3,700,185
15,767,000 Huaneng Power International Inc, Class H 21,630,892
22,374,000 Maanshan Iron & Steel Co Ltd, Class H 5,249,722
203,637,000 PetroChina Co Ltd, Class H 71,148,342
26,338,000 Shandong International Power Development Co Ltd, Class
H 7,766,981
7,303,000 Shanghai Industrial Holdings Ltd, Class H 12,172,681
30,692,000 Sinopec Shanghai Petrochemical Co Ltd, Class H 7,476,879
18,612,000 TCL International Holdings Ltd 5,488,611
7,700,000 Top Form International Ltd* 1,135,351
2,050,000 Victory City International Holdings 880,522
8,316,000 Yanzhou Coal Mining Co Ltd, Class H 4,878,060
8,500,000 Yip's Chemical Holdings Ltd 1,874,515
13,271,918 Zhejiang Southeast Electric Power Co, Class B 8,387,852
-------------
395,499,190
-------------
CZECH REPUBLIC -- 1.6%
428,476 Ceske Radiokomunikace* 4,120,553
1,228,865 Ceski Telecom AS 13,603,863
3,972,878 CEZ AS 18,142,927
291,400 Komercni Banka AS 23,374,055
48,000 Komercni Banka AS GDR 1,276,800
11,130 Philip Morris CR AS 5,184,312
-------------
65,702,510
-------------
EGYPT -- 0.4%
505,744 Commercial International Bank 3,166,040
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
EGYPT -- CONTINUED
176,716 Eastern Tobacco Co 1,982,667
794,583 Egyptian International Pharmaceuticals Industries Co 1,069,780
1,059,257 MobiNil-Egyptian Mobile Services Co 9,128,556
-------------
15,347,043
-------------
HUNGARY -- 0.2%
15,850 Gedeon Richter Rt 1,349,281
26,300 Magyar Tavkozlesi Rt (Matav) ADR 497,070
53,300 MOL Magyar Olaj es Gazipari Rt (New Shares) 1,313,557
377,500 OTP Bank Rt* 4,298,172
73,100 Pannonplast Rt* 421,599
-------------
7,879,679
-------------
INDIA -- 0.9%
575,300 Bharat Heavy Electricals Ltd 4,398,836
160 BSES Ltd 1,155
900 BSES Ltd (Shares Under Objection) --
139,472 BSES Ltd GDR 2,998,648
900 Cipla Ltd 19,791
3,000 Cipla Ltd (Shares Under Objection)*(a) 1
508,791 Crompton Greaves Ltd* 1,220,921
850 Escorts Ltd 953
133,200 e-Serve International Ltd 1,863,754
203,900 Galaxy Entertainment Corp* 180,814
1,318 Great Eastern Shipping Co 2,013
2,790 HCL Infosystems Ltd 9,571
200 HCL Infosystems Ltd (Shares Under Objection) --
620 HCL Technologies Ltd 2,485
71,100 Infosys Technologies ADR 4,027,815
50,000 ING Vysya Bank Ltd 502,836
104,028 Ipca Laboratories Ltd 1,148,302
270 ITC Ltd 4,901
100 ITC Ltd (Shares Under Objection) --
87 Mahindra GESCO Developers Ltd 36
21,500 Mastek Ltd 109,071
21,275 NIIT Ltd 63,305
71,360 Ranbaxy Laboratories Ltd GDR 1,661,974
896 Reliance Industries Ltd 7,740
7,133 Reliance Industries Ltd (Shares Under Objection) 2
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
INDIA -- CONTINUED
179,500 Reliance Industries Ltd GDR 144A 3,284,850
355,600 State Bank of India GDR 8,925,560
360,000 Tata Power Co Ltd 1,517,670
113,658 Thermax Ltd 711,602
524,200 U TV Software Comm Ltd*+(a) 285,886
469,154 United Phosphorous Ltd 3,872,772
206,046 Venky's (India) Ltd 255,760
200 Wockhardt Life Sciences Ltd* 138
2,100 Wockhardt Ltd 22,906
-------------
37,102,068
-------------
INDONESIA -- 4.2%
34,614,692 Astra International Tbk* 15,502,160
93,932,000 Bank Central Asia Tbk 32,380,801
11,490,000 Bank Mandiri Persero PT* 1,151,031
14,803,400 Bimantara Citra Tbk PT 6,891,388
6,586,500 Gudang Garam 7,141,520
39,613,500 HM Sampoerna Tbk 18,908,035
28,275,800 Indah Kiat Pulp & Paper* 1,499,600
63,946,500 Indofood Sukses Makmur Tbk 5,087,082
853,000 Indonesian Satellite Corp Tbk PT 814,296
29,868,000 Indorama Synthetics 1,460,839
3,503,000 International Nickel 4,850,943
50,118,000 Mayora Indah Tbk 4,429,994
186,900 PT Indonesian Satellite Corp Tbk ADR 1,783,026
76,177,500 PT Matahari Putra Prima Tbk 4,264,504
2,798,000 Semen Gresik 2,621,579
103,588,780 Telekomunikasi Indonesia Tbk PT, Class B 55,853,703
301,969 Telekomunikasi Indonesia Tbk PT, Class B ADR 3,382,053
-------------
168,022,554
-------------
ISRAEL -- 2.0%
5,641,500 Bank Hapoalim Ltd* 11,006,257
4,751,000 Bank Leumi Le-Israel* 6,649,689
1,112,400 Check Point Software Technologies* 19,433,628
1,567,618 Lumenis Ltd* 1,975,199
1,249,200 Machteshim Agan Industries 3,331,013
285,400 Radware Ltd* 5,365,520
1,671,700 Super-Sol Ltd 3,227,540
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
ISRAEL -- CONTINUED
80,500 Taro Pharmaceuticals Industries* 4,346,195
355,700 Teva Pharmaceutical Industries ADR 20,883,858
1,899,900 United Mizrahi Bank Ltd* 5,275,600
-------------
81,494,499
-------------
LEBANON -- 0.0%
12,059 Banque Libanaise pour le Commerce Sal* 44,217
-------------
MALAYSIA -- 0.4%
301,000 Affin Holdings Berhad 97,429
2,975,000 Arab-Malaysian Corp Berhad* 1,009,934
72,000 British American Tobacco Berhad 776,842
518,000 Edaran Otomobil Berhad 1,233,658
4,005,000 Highlands and Lowlands Berhad 3,520,184
1,192,400 Hong Leong Credit Berhad 1,550,120
1,744,600 IJM Corp Berhad, Class A 2,277,162
825,000 Malaysian International Shipping (Foreign Registered) 2,160,197
179,667 OYL Industries BHD 1,501,165
3,491,700 Saship Holdings*(a)(b) 9,189
1,206,000 Sime UEP Properties Berhad 1,428,158
14,130,000 Tan Chong International Ltd 2,210,261
-------------
17,774,299
-------------
MEXICO -- 2.9%
8,644,900 Alfa SA de CV, Class A 20,293,928
637,510 America Movil SA de CV ADR 14,662,730
4,069,000 Carso Global Telecom, Class A* 4,886,636
71,397 Cemex SA de CV ADR (Participating Certificates) 1,784,925
724,129 Cemex SA de CV CPO 3,596,689
1,148,000 Consorcio ARA SA de CV* 2,486,830
1,879,300 Corporacion GEO SA de CV Series B* 8,516,723
4,349,000 Grupo Cementos de Chihuahua SA de CV 3,823,557
5,873,900 Grupo Financiero Banorte SA de CV 15,652,376
8,232,755 Grupo Financiero Serfin SA de CV, Class B*(a)(b) 7,462
1,224,600 Telefonos de Mexico, Class L ADR 37,117,626
1,648,000 Wal-Mart de Mexico SA de CV 4,507,989
-------------
117,337,471
-------------
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
PERU -- 0.1%
117,900 Cia de Minas Buenaventura SA ADR 4,502,601
-------------
PHILIPPINES -- 1.9%
32,724,184 Ayala Corp 2,530,067
199,329,000 Ayala Land Inc 21,031,621
4,239,200 Bank of the Philippine Islands 3,161,856
15,807,528 First Philippine Holdings* 4,888,630
259,212 Globe Telecom Inc 2,923,621
2,248,630 Philippine Long Distance Telephone* 21,884,975
278,900 Philippine Long Distance Telephone ADR* 2,789,000
50,000 Philippine Long Distance Telephone GDR 144A* 1,812,500
7,606,851 San Miguel Corp, Class B 8,718,057
63,609,200 SM Prime Holdings 6,248,675
-------------
75,989,002
-------------
POLAND -- 1.5%
529,400 Bank Pekao SA 16,851,600
530,400 BRE Bank SA* 15,081,642
2,325,600 KGHM Polska Miedz SA* 12,055,047
2,919,300 Polski Koncern Naftowy Orlen 18,144,389
-------------
62,132,678
-------------
RUSSIA -- 2.2%
690,700 AO Mosenergo ADR 4,731,295
632,610 Bashneft 2,454,276
2,649,789 Chelyabinsk Pipe Works* 596,203
7,500 Cherepovets MK Severstal 705,000
17,100 Dalmoreproduct* 1,710
90,000 Divot Holdings NV*+(a)(b) 900
272,800 Electrosila* 1,568,600
362,650 Lukoil ADR 28,196,037
37,000 Lukoil ADR 144A 2,876,750
120,997 MMC Norilsk Nickel ADR 4,779,382
785,700 North-West Telecom 274,209
350,000 Onaco Oil Co* 612,500
40,000 Orenburgneft* 592,000
368,800 Rostelecom ADR 3,853,960
135,000 Russia Petroleum* 675,000
12,200 Sberbank RF 3,098,800
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
RUSSIA -- CONTINUED
10,000 Seversky Tube Works ADR* 124,500
6,375 Severstal-Auto* 12,750
6,375 Severstal-Resursources* 6,375
8,896,214 Sibirtelecom 262,438
143,600 Sibneft ADR 3,823,350
116,810 Sun Interbrew Ltd, Class A GDR* 467,240
718,000 Sun Interbrew Ltd, Class B GDR* 3,231,000
37,000 Trade House GUM ADR* 111,000
2,400 Udmurtneft* 336,000
94,000 United Heavy Machinery ADR 144A* 663,640
870,580 United Heavy Machinery Uralmash-Izhora Group ADR* 6,146,295
325,830 Yukos Corp ADR 18,653,768
-------------
88,854,978
-------------
SOUTH AFRICA -- 8.0%
6,080,140 ABSA Group Ltd 29,405,316
3,003,800 AECI Ltd 10,982,516
5,576,030 African Bank Investments Ltd 5,515,173
80,090 AngloGold Ltd 3,103,078
2,314,493 Anglovaal Industries Inc 5,052,099
6,488,890 Foschini Ltd 15,491,893
426,048 Impala Platinum Holdings Ltd 33,130,027
14,017,376 Iscor Ltd 39,585,223
870,279 Kumba Resources Ltd 4,137,684
246,008 Liberty International Plc 2,604,731
7,995,400 MTN Group Ltd* 19,797,614
1,218,000 Naspers Ltd 4,569,577
1,506,416 Nedcor Ltd 17,098,746
2,793,200 Premier Group Ltd*(a) 3,811
5,658,770 Remgro Ltd 47,092,083
26,850,257 Sanlam Ltd 26,557,212
2,478,410 Sasol Ltd 28,740,089
1,784,000 Standard Bank Investment Corp 8,007,312
917,700 Telkom SA Ltd* 5,046,724
452,000 Tiger Brands Ltd 4,433,670
1,054,200 Tongaat-Hulett Group 5,105,607
3,726,000 Venfin Ltd* 8,697,389
-------------
324,157,574
-------------
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
SOUTH KOREA -- 15.7%
38,180 Amorepacific Corp 4,795,790
924,100 Cheil Industries Inc 12,391,920
2,909,100 Chohung Bank* 9,505,652
80,000 Crown Confectionery Co Ltd 3,564,609
372,220 Daelim Industrial Co Ltd 8,182,048
3,890,800 Daesang Corp 12,548,305
977,000 Daewoo Shipbuilding & Marine Engineering Co Ltd* 11,111,224
329,090 Daum Communications Corp* 18,294,415
582,104 Fine Tec Corp 2,057,681
3,979,000 Haansoft Inc* 5,420,153
1,396,600 Hanaro Telecom Inc* 4,184,170
78,450 Hanil Cement Manufacturing 3,788,504
2,085,700 Hankook Tire Co Ltd 12,107,947
221,840 Hanssem Co Ltd 2,118,141
2,269,248 Hanwha Corp* 8,724,544
647,040 Hyosung Corp 7,193,910
644,000 Hyundai Autonet Co Ltd 1,776,363
327,240 Hyundai Elevator Co Ltd* 7,832,097
111,400 Hyundai Heavy Industries* 2,864,774
2,033,690 Hyundai Industrial Development 16,155,602
207,000 Hyundai Mipo Dockyard* 1,879,822
535,700 Hyundai Motor Co 17,822,567
1,417,400 Jusung Engineering Co Ltd* 9,683,913
64,900 Kangwon Land Inc 7,287,307
879,400 KIA Motors Corp 6,814,277
381,800 Kookmin Credit Card Co Ltd* 6,124,354
2,294,570 Korea Electric Power Corp 37,585,573
2,953,500 Korea Exchange Bank* 13,235,290
289,013 Korea Information Service Inc 6,819,063
279,700 Korean Air Lines 3,525,181
442,100 KT Corp 16,828,504
17,000 KT Corp ADR 320,450
1,027,900 KT&G Corp 17,011,712
576,000 KT&G Corp GDR 144A 4,711,680
856,732 LG Card Co Ltd 15,305,927
646,210 LG Electronics Inc 35,100,734
1,118,900 LG Engineering & Construction Ltd 18,707,685
727,560 LG Industrial Systems Co Ltd* 5,075,785
4,409,790 LG International Corp 29,267,607
1,560,900 LG Investment & Securities Co Ltd 18,811,610
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
SOUTH KOREA -- CONTINUED
252,800 Poongsan Corp 1,988,929
242,376 POSCO 28,593,477
701,300 Samsung Corp 5,059,240
249,000 Samsung Electronics 91,928,708
104,800 Samsung SDI Co Ltd 9,828,474
755,400 Samsung Techwin Co Ltd* 6,795,875
925,500 Serome Technology Inc* 5,262,763
1,609,570 SK Corp 22,813,341
1,500 SK Telecom Co Ltd 255,888
214,000 SK Telecom Co Ltd ADR 4,078,840
2,422,000 Ssangyong Motor Co* 17,061,405
170,000 Sungshin Cement Co Ltd 3,635,901
648,462 Taihan Electric Wire Co Ltd 3,456,263
1,440,300 Woori Finance Holdings Co Ltd 8,984,685
-------------
636,280,679
-------------
SRI LANKA -- 0.0%
333,600 Lanka Walltile Ltd 139,531
1,591,169 Millenium Information Technology*+(a) 787,470
-------------
927,001
-------------
TAIWAN -- 12.9%
10,653,839 Acer Inc 15,750,889
12,342,290 Ambassador Hotel* 2,962,901
2,799,500 Ambit Microsystems Corp 7,663,015
29,541,431 Asustek Computer Inc 79,565,889
15,588,000 AU Optronics Corp 20,763,921
27,607,000 Benq Corp 40,814,846
5,848,055 Chang Hwa Commercial Bank* 3,013,226
94,228,020 China Development Financial Holding Corp 35,309,991
56,757,000 China Petrochemical Development Corp* 7,111,656
47,922,165 China Steel Corp 38,300,694
17,032,950 Chinatrust Financial Holding Co 13,862,522
584,220 Chunghwa Telecom Co Ltd ADR 8,249,186
6,280,150 Compal Electronics Inc 9,560,507
17,236,000 Compeq Manufacturing Co Ltd* 6,685,901
7,579,732 Evergreen Marine Corp 5,214,699
403,200 First Financial Holding Co Ltd GDR* 4,749,696
3,612,960 Formosa Chemicals & Fibre Co 4,717,431
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
TAIWAN -- CONTINUED
2,236,020 Formosa Plastics Corp 3,305,785
4,232,812 GigaByte Technology Co Ltd 8,674,303
31,689,000 Grand Commercial Bank* 11,967,565
1,793,145 Hon Hai Precision Industry Co Ltd 7,401,881
4,005,000 Hua Nan Financial Holdings Co Ltd* 2,849,157
25,888,920 Inventec Co Ltd 15,764,668
2,779,600 MediaTek Inc 27,667,428
11,724,550 Mega Financial Holdings Co Ltd 5,697,861
29,239,000 Mosel Vitelic Inc* 2,020,143
12,438,093 Nan Ya Plastic Corp 14,929,499
30,197,886 Orient Semiconductor Electronics Ltd* 5,569,608
18,648,000 Ritek Corp* 12,829,440
2,102,300 Synnex Technology International Corp 3,169,637
30,999,850 Taiwan Cement Corp 11,435,040
14,951,141 Taiwan Semiconductor Manufacturing Co Ltd* 29,326,262
119,016 Taiwan Semiconductor Manufacturing Co Ltd ADR* 1,402,008
13,786,914 Teco Electric & Machinery 4,682,013
6,039,190 United Microelectronics Corp* 4,950,446
741,764 United Microelectronics Corp ADR* 3,686,567
29,960,000 Walsin Lihwa Corp* 7,674,630
15,582,000 Waterland Financial Holdings* 4,037,142
27,803,040 Yageo Corp* 10,174,425
13,024,810 Yang Ming Marine Transport 11,134,272
14,597,000 Yieh Loong Enterprise Co Ltd* 6,303,231
2,322,000 Yulon Motor Co Ltd 2,691,937
-------------
523,641,918
-------------
THAILAND -- 4.4%
17,054,100 Advanced Info Service Pcl (Foreign Registered) 23,034,864
14,272,000 Bangkok Expressway Pcl (Foreign Registered)(a) 7,988,708
35,377,700 Bank of Ayudhya Pcl (Foreign Registered)* 8,609,808
4,200,400 Central Pattana Pcl (Foreign Registered)(a) 4,625,653
13,485,640 Charoen Pokphand Foods Pcl (Foreign Registered)(a) 1,739,447
2,109,460 Electricity Generating Pcl (Foreign Registered) 3,234,266
3,509,300 Electricity Generating Pcl NVDR 5,124,312
5,724,000 GMM Grammy Pcl (Foreign Registered)(a) 3,022,896
2,300,000 Italian-Thai Development Pcl NVDR* 3,302,507
8,686,200 Kasikornbank Pcl NVDR* 8,772,872
2,604,300 Krungthai Card Pcl (Foreign Registered)(a) 3,200,709
28,019,100 Land & House Pcl NVDR 7,296,285
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
THAILAND -- CONTINUED
6,411,000 Loxley Pcl (Foreign Registered)*(a) 4,017,602
9,111,600 National Finance Pcl NVDR 3,104,463
3,927,000 National Petrochemical (Foreign Registered)(a) 6,881,090
860,158 PTT Exploration & Production Pcl (Foreign
Registered)(a) 3,307,495
14,588,800 PTT Pcl (Foreign Registered)(a) 25,918,287
15,260,000 Quality House Co Ltd (Foreign Registered)(a) 3,249,574
2,845,000 Ratchaburi Electricity Generating Holding Pcl (Foreign
Registered)(a) 2,007,909
590,000 Regional Container Lines (Foreign Registered)(a) 1,414,334
17,070,000 Saha Pathana International Holdings Pcl (Foreign
Registered)(a) 5,234,412
16,566,000 Sansiri Pcl (Foreign Registered)*(a) 6,289,355
310,083 Siam Cement Pcl (Foreign Registered) 1,418,730
3,520,417 Siam Cement Pcl (Foreign Registered) NVDR 14,564,879
8,232,300 Siam Commercial Bank Pcl (Foreign Registered)* 7,813,573
3,108,050 Star Block Co Ltd (Foreign Registered)*(a)(b) 756
1,415,450 Thai German Ceramics Industry (Foreign Registered)(a) 2,514,671
4,972,800 Thai Union Frozen Products Pcl (Foreign Registered) 3,751,687
2,403,300 Univenture Pcl (Foreign Registered)(a) 1,915,504
1,096,700 Univenture Pcl NVDR(a) 874,104
12,000,000 Vanachai Group Pcl (Foreign Registered)(a) 3,124,848
-------------
177,355,600
-------------
TURKEY -- 3.8%
515,993,600 Adana Cimento, Class A 1,334,387
9,950,808,787 Akbank TAS 30,879,984
646,573,500 Akcansa Cimento AS 1,764,326
699,541,315 Aksigorta AS 2,108,480
361,385,000 Anadolu Isuzu Otomotiv Sanay* 2,449,194
262,055,000 Aselsan Askeri Elektroni 1,804,053
24,163,000 Brisa Bridgestone Sabanci 676,581
930,300,000 Carsi Buyuk Magazacilik AS* 1,028,689
1,298,513,700 Doktas Dokumculuk Ticaret* 1,278,366
997,777,000 Eregli Demir ve Celik Fabrikalari TAS* 15,517,417
8,461,067,000 Finansbank* 5,492,828
785,870,000 Ford Otomotive Sanayii AS* 10,820,254
78,619,000 Galatasaray Sportif Sinai ve Ticari Yatirimlar AS* 2,565,949
1,466,524,000 Global Menkul Degerler AS* 857,892
164,742,000 Mardin Cimento Sanayii 552,372
42,150,000 Medya Holding(c)*(a) --
480,492,000 Milliyet Gazetecilik AS* 942,645
58,823,000 Nortel Networks Netas Telekomunikasyon AS 1,112,045
</Table>
See accompanying notes to the financial statements. 11
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
TURKEY -- CONTINUED
5,687,882,000 Tansas Perakende Magazacilik Ticaret AS* 4,138,855
4,226,555,793 Tofas Turk Otomobil Fabrik* 5,367,055
1,555,388,750 Trakya Cam Sanayii 3,911,357
1,348,830,074 Tupras Turkiye Petrol Rafine 10,969,619
1,043,317,807 Turkcell Iletisim Hizmet AS* 7,591,826
18,071,536,668 Turkiye Garanti Bankasi* 27,846,991
2,225,815,078 Turkiye IS Bankasi* 8,256,992
123,975,000 Uzel Makina Sanayii AS* 206,957
4,505,442,000 Yapi ve Kredi Bankasi* 4,499,817
-------------
153,974,931
-------------
VENEZUELA -- 0.5%
1,499,612 Compania Anonima Nacional Telefonos de Venezuela
(CANTV) ADR 19,839,867
30,055 Mantex SACA, Class A ADR* 38,605
350,434 Mercantil Servicios Financieros ADR 2,192,946
-------------
22,071,418
-------------
TOTAL COMMON STOCKS (COST $2,678,458,279) 3,222,481,860
-------------
PREFERRED STOCKS -- 10.8%
BRAZIL -- 8.5%
39,076,000 Ambev Ciade Rebid 1.67% 8,643,965
2,242,359,600 Banco Bradesco SA 1.23% 9,557,102
430,253,000 Banco Itau Holding Financeira SA 32,621,343
23,904,000 Belgo Mineira (Registered) 4,585,435
710,800,638 Brasil Telecom Participacoes SA 2.19% 5,398,820
153,900 Compania Vale do Rio Doce, Class A 5,275,532
1,982,478,860 Electrobras, Class B (Registered) 9.83% 16,470,442
10,442,284,000 Embratel Participacoes SA* 21,441,772
1,094,863 Gerdau SA 16,406,306
50,214,865 Investimentos Itau SA 2.68% 47,993,268
4,377,500 Petroleo Brasileiro SA (Petrobras) 3.01% 89,885,849
521,700 Petroleo Brasileiro SA ADR 6.93% 10,642,680
1,079,427,248 Siderurgica de Tubarao 3.50% 21,654,164
11,486,600,000 Tele Centro Oeste Celular Participacoes SA 6.78% 23,353,371
407,300 Tele Centro Oeste Celular SA ADR 2.38% 2,484,530
89,232 Tele Norte Leste Participacoes ADR 4.11% 1,160,908
688,603,060 Tele Norte Leste Participacoes SA 3.44% 8,974,398
253,789,000 Telemar Norte Leste SA 3,853,547
</Table>
12 See accompanying notes to the financial statements.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
BRAZIL -- CONTINUED
12,770,698 Unipar, Class B 2.52% 8,065,250
928,000 Usinas Siderrurgicas de Minas Gerais SA 4.57% 5,327,930
-------------
343,796,612
-------------
RUSSIA -- 0.2%
100,800 Red October 144A 96,768
16,125 Transneft 6,450,000
-------------
6,546,768
-------------
SOUTH KOREA -- 2.1%
190,400 Hyundai Motor Co 5.05% 2,892,561
242,100 LG Electronics Inc 5,948,479
426,463 Samsung Electronics (Non Voting) 4.08% 77,094,521
-------------
85,935,561
-------------
TOTAL PREFERRED STOCKS (COST $332,489,175) 436,278,941
-------------
RIGHTS AND WARRANTS -- 3.1%
INDIA -- 2.9%
4,331,067 Arvind Warrants, Expires 12/6/04 (Goldman Sachs)*(e) 4,251,702
500,000 Bank of Baroda Warrants, Expires 1/6/05 (Goldman
Sachs)*(e) 1,569,044
966,000 Bank of Baroda Warrants, Expires 12/20/04 (Goldman
Sachs)*(e) 3,031,394
1,380,000 Bank of Baroda Warrants, Expires 4/4/05 (JP Morgan
Chase)*(e) 4,453,118
1,608,000 Bharat Heavy Electricals Ltd Warrants, Expires 8/3/04
(Goldman Sachs)*(e) 12,295,026
516,000 Bharat Heavy Electricals Ltd Warrants, Expires 10/29/04
(Goldman Sachs)*(e) 3,945,419
122,350 Bharat Heavy Electricals Ltd Warrants, Expires 4/4/05
(JP Morgan Chase)*(e) 935,508
725,034 Bharat Heavy Electricals Ltd Warrants, Expires 9/9/05
(Merrill Lynch)*(e) 5,543,726
345,000 Bharat Heavy Industries Ltd Warrants, Expires 9/12/05
(Merrill Lynch)*(e) 2,506,217
142,800 Bharat Petroleum Corp Ltd Warrants, Expires 4/4/05 (JP
Morgan Chase)*(e) 1,082,688
175,000 CBAY Systems Ltd Warrants, Expires 3/31/05*+(a)(e) --
265,000 Digital Global Soft Warrants, Expires 12/20/04 (Goldman
Sachs)*(e) 2,928,065
332,317 Digital Global Soft Warrants, Expires 6/23/06 (Merrill
Lynch)*(e) 3,671,871
402,000 Digital Global Soft Warrants, Expires 8/3/04 (Goldman
Sachs)*(e) 4,441,819
5,638 e-Serve International Ltd Warrants, Expires 10/10/05
(Merrill Lynch)*(e) 78,888
</Table>
See accompanying notes to the financial statements. 13
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
INDIA -- CONTINUED
292,326 HPCL Warrants, Expires 6/5/06 (Merrill Lynch)*(e) 2,743,426
1,012,935 HROH Warrants, Expires 5/5/06 (Merrill Lynch)*(e) 6,413,708
481,000 Hughes Software Systems Warrants, Expires 7/8/05 (JP
Morgan Chase)*(e) 3,620,092
1,527,000 ICICI Bank Ltd Warrants, Expires 7/16/04 (Merrill
Lynch)*(e) 5,962,762
294,128 ING Vysya Bank Ltd Warrants, Expires 1/25/05 (Goldman
Sachs)*(e) 2,987,542
1,702,861 Larsen Warrants, Expires 1/12/05 (Goldman Sachs)*(e) 10,880,628
900,000 Pantaln Warrants, Expires 1/18/05 (Goldman Sachs)*(e) 3,385,946
23,709 Ranbaxy Laboratories Ltd Warrants, Expires 2/3/04
(Goldman Sachs)*(e) 523,619
14,810 Ranbaxy Laboratories Ltd Warrants, Expires 4/4/05 (JP
Morgan Chase)*(e) 322,757
340,675 Ranbaxy Laboratories Ltd Warrants, Expires 9/2/05
(Merrill Lynch)*(e) 11,879,034
881,000 Reliance Industries Ltd Warrants, Expires 1/5/05
(Goldman Sachs)*(e) 7,686,840
557,000 Reliance Industries Ltd Warrants, Expires 4/4/05 (JP
Morgan Chase)*(e) 4,895,986
11,280 State Bank of India Warrants, Expires 12/23/05 (Merrill
Lynch)*(e) 107,411
476,330 United Phosphorous Ltd Warrants, Expires 10/10/05
(Merrill Lynch)*(e) 3,932,009
1,823,406 Zee Telefilms Warrants, Expires 1/18/05 (Goldman
Sachs)*(e) 4,146,101
-------------
120,222,346
-------------
SOUTH KOREA -- 0.0%
136,547 Taihan Electric Rights, Expires 9/8/03* 199,330
-------------
THAILAND -- 0.2%
14,151,080 Bank of Ayudhya Warrants, Expires 8/25/08* --
4,226,464 Charoen Pokphand Foods Pcl Warrants, Expires 4/29/05
(Foreign Registered)* 704,582
30,569,000 Land & House Warrants, Expires 9/02/08 (Foreign
Registered)* 5,877,223
2,675,600 Quality House Co Ltd Warrants, Expires 5/14/08* 179,068
2,689,393 Telecomasia Corp Pcl Warrants, Expires 4/3/08*(a) --
-------------
6,760,873
-------------
TOTAL RIGHTS AND WARRANTS (COST $92,997,309) 127,182,549
-------------
PRIVATE EQUITY SECURITIES -- 1.4%
POLAND -- 1.4%
21,635,077 CHP Investors (Multimedia)*+(a) 32,413,672
25,091,031 MHP Investors (Tri Media Holdings LTD)*+(a) 19,638,750
</Table>
14 See accompanying notes to the financial statements.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
POLAND -- CONTINUED
9,204,400 Polimex Investment Partners (Polimex Construction)*+(a) 6,138,415
-------------
58,190,837
-------------
TOTAL PRIVATE EQUITY SECURITIES (COST $58,679,407) 58,190,837
-------------
DEBT OBLIGATIONS -- 1.3%
UNITED STATES -- 1.3%
$ 16,985,000 U.S. Treasury Inflation Indexed Bond, 3.00%, due
07/15/12(d) 18,698,294
$ 1,535,000 U.S. Treasury Inflation Indexed Note, 4.25%, due
01/15/10(d) 1,918,554
$ 26,550,000 U.S. Treasury Inflation Indexed Note, 3.88%, due
01/15/09(d) 33,234,626
-------------
53,851,474
-------------
TOTAL DEBT OBLIGATIONS (COST $51,693,132) 53,851,474
-------------
INVESTMENT FUNDS -- 0.4%
INDIA -- 0.0%
170 SPG Infinity Technology Fund I+(a) 242,420
1,227,400 TDA India Technology Fund II LP*+(a) 709,315
10,400 UTI Masterplus 1991 Units* 4,950
100 UTI Masterplus 1991 Units (Shares Under Objection) --
-------------
956,685
-------------
KAZAKHSTAN -- 0.0%
450,000 Kazakhstan Investment Fund+(a) 71,250
-------------
POLAND -- 0.0%
1,749,150 The Emerging Europe Fund II, LP*+(a) 631,093
-------------
ROMANIA -- 0.1%
3,600 Romanian Investment Fund*+(a) 1,231,754
-------------
RUSSIA -- 0.3%
9,500,000 NCH Eagle Fund LP*+(a) 12,084,416
-------------
</Table>
See accompanying notes to the financial statements.
15
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
UKRAINE -- 0.0%
16,667 Societe Generale Thalmann Ukraine Fund*+(a) 426,333
-------------
TOTAL INVESTMENT FUNDS (COST $21,761,458) 15,401,531
-------------
MUTUAL FUNDS -- 0.3%
UNITED STATES -- 0.3%
133,320 GMO Alpha LIBOR Fund(d) 3,221,014
337,110 GMO Short-Duration Collateral Fund(d) 8,498,544
-------------
11,719,558
-------------
TOTAL MUTUAL FUNDS (COST $11,840,831) 11,719,558
-------------
CONVERTIBLE SECURITIES -- 0.1%
INDIA -- 0.1%
$ 2,500,000 CBAY Systems Ltd, Convertible Securities, Zero Coupon,
due 12/31/05+(a) 2,500,000
-------------
INDONESIA -- 0.0%
$ 26,000,000 APP Global Finance (VI) Mauritius Ltd, Zero Coupon, due
11/18/12 1,170,000
-------------
MALAYSIA -- 0.0%
$ 911,400 Berjaya Sports Toto BHD, 8.00%, due 06/25/12 877,822
-------------
RUSSIA -- 0.0%
$ 124,330 Divot Holdings NV*+(a)(b) 1,244
$ 46,624 Divot Holdings, Convertible Securities*+(a)(b) 466
$ 56,000 Lukinter Finance BV, 3.50%, due 11/29/07 72,324
-------------
74,034
-------------
TOTAL CONVERTIBLE SECURITIES (COST $8,757,015) 4,621,856
-------------
</Table>
See accompanying notes to the financial statements.
16
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 2.2%
CASH EQUIVALENTS -- 2.2%
$ 61,400,000 Societe General GC Time Deposit, 1.06%, due 09/02/03 61,400,000
$ 27,962,695 The Boston Global Investment Trust(f) 27,962,695
-------------
89,362,695
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $89,362,695) 89,362,695
-------------
TOTAL INVESTMENTS -- 99.1%
(Cost $3,346,039,301) 4,019,091,301
Other Assets and Liabilities (net) -- 0.9% 34,458,898
-------------
TOTAL NET ASSETS -- 100.0% $4,053,550,199
=============
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
<Table>
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
ADR - American Depositary Receipt
GDR - Global Depository Receipt
NVDR - Non-Voting Depository Receipt
</Table>
* Non-income producing security.
+ Direct placement securities are restricted as to resale. They have been
valued at fair value by the Trustees after consideration of restrictions
as to resale, financial condition and prospects of the issuer, general
market conditions, and pertinent information in accordance with the
Fund's Prospectus and the Investment Company Act of 1940, as amended.
The Fund has limited rights to registration under the Securities Act of
1933 with respect to those restricted securities.
(a) Security valued at fair value using methods determined in good faith by
or at the direction of the Trustees (Note 1).
(b) Bankrupt issuer.
(c) Bankrupt security - valued by management (Note 1).
(d) All or a portion of this security is held as collateral for open swap
contracts (Note 6).
(e) Structured warrants with risks similar to equity swaps (Note 2).
(f) Represents investment of security lending collateral (Note 1).
See accompanying notes to the financial statements. 17
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
Additional information on each restricted security is as follows:
<Table>
<Caption>
MARKET
VALUE AS A MARKET
PERCENTAGE VALUE AS OF
ACQUISITION ACQUISITION OF FUND'S AUGUST 31,
ISSUER, DESCRIPTION DATE COST NET ASSETS 2003
- ---------------------------------------------------------------------------------------------------------
CBAY Systems Ltd Warrants, Expires 3/31/05 5/06/03 $ 0 0.00% $ 0
CBAY Systems Ltd, Convertible Securities,
Zero Coupon, due 12/31/05 5/06/03 2,500,000 0.06 2,500,000
CHP Investors (Multimedia) 12/13/99 - 3/05/01 22,825,006 0.80 32,413,672
Divot Holdings NV, Convertible Securities 9/21/01 124,330 0.00 1,243
Divot Holdings NV, Common Stocks 6/26/00 1,502,100 0.00 900
Divot Holdings, Convertible Securities 3/27/02 46,624 0.00 466
Kazakhstan Investment Fund 10/16/97 3,285,000 0.00 71,250
MHP Investors (Tri Media Holdings LTD) 11/27/01 26,147,396 0.48 19,638,750
Millenium Information Technology 10/21/99 2,252,570 0.02 787,470
NCH Eagle Fund LP 1/21/97 9,500,000 0.30 12,084,416
Polimex Investment Partners (Polimex
Construction) 7/07/99 - 9/21/01 9,707,005 0.15 6,138,414
Romanian Investment Fund 5/12/97 3,600,000 0.03 1,231,753
Societe Generale Thalmann Ukraine Fund 7/15/97 1,289,859 0.01 426,333
SPG Infinity Technology Fund I 12/23/99 1,105,000 0.01 242,420
TDA India Technology Fund II LP 2/23/00 - 10/02/01 1,227,400 0.02 709,314
The Emerging Europe Fund II, LP 12/05/97 - 3/17/00 1,749,150 0.02 631,093
U TV Software Comm Ltd 2/29/00 3,004,959 0.01 285,886
</Table>
18 See accompanying notes to the financial statements.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
AUGUST 31, 2003 (UNAUDITED)
At August 31, 2003, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
- --------------------------------------------------------------------
Financials 21.0%
Information Technology 14.8
Materials 12.8
Energy 12.0
Telecommunication Services 12.0
Industrials 8.3
Consumer Discretionary 7.2
Utilities 4.3
Consumer Staples 4.2
Health Care 1.2
Miscellaneous 2.2
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements.
19
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$26,307,175 (cost $3,346,039,301) (Note 1) $4,019,091,301
Foreign currency, at value (cost $16,534,903) (Note 1) 16,788,534
Receivable for investments sold 13,608,880
Receivable for Fund shares sold 46,000,000
Dividends and interest receivable 11,454,266
Foreign taxes receivable 1,066,313
Net receivable for open swap contracts (Notes 1 and 5) 4,811,762
Net receivable for closed swap contracts (Notes 1 and 5) 1,146,255
Receivable for expenses reimbursed by Manager (Note 2) 28,086
--------------
Total assets 4,113,995,397
--------------
LIABILITIES:
Payable for investments purchased 20,583,841
Payable upon return of securities loaned (Note 1) 27,962,695
Payable for Fund shares repurchased 6,223,000
Due to custodian 573,327
Payable to affiliate for (Note 2):
Management fee 2,598,680
Shareholder service fee 413,794
Accrued expenses 2,089,861
--------------
Total liabilities 60,445,198
--------------
NET ASSETS $4,053,550,199
==============
NET ASSETS CONSIST OF:
Paid-in capital $3,686,440,765
Accumulated undistributed net investment income 20,988,526
Accumulated net realized loss (331,871,769)
Net unrealized appreciation 677,992,677
--------------
$4,053,550,199
==============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $2,433,266,241
==============
Class IV shares $1,078,542,307
==============
Class V shares $ 97,742,621
==============
Class VI shares $ 443,999,030
==============
SHARES OUTSTANDING:
Class III 208,579,624
==============
Class IV 92,598,700
==============
Class V 8,382,387
==============
Class VI 38,092,949
==============
NET ASSET VALUE PER SHARE:
Class III $ 11.67
==============
Class IV $ 11.65
==============
Class V $ 11.66
==============
Class VI $ 11.66
==============
</Table>
20 See accompanying notes to the financial statements.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $5,909,253) $ 53,477,528
Interest (including securities lending income of $65,472) 2,812,602
Dividends from investment company shares 32,908
------------
Total income 56,323,038
------------
EXPENSES:
Management fee (Note 2) 12,107,475
Custodian fees 2,189,834
Legal fees 84,548
Audit fees 73,232
Trustees fees and related expenses (Note 2) 27,825
Transfer agent fees 25,576
Registration fees 8,556
Miscellaneous 21,436
Fees reimbursed by Manager (Note 2) (162,012)
------------
14,376,470
Shareholder service fee (Note 2) - Class III 1,310,009
Shareholder service fee (Note 2) - Class IV 608,845
Shareholder service fee (Note 2) - Class V 22,095
Shareholder service fee (Note 2) - Class VI 9,156
------------
1,950,105
------------
Net expenses 16,326,575
------------
Net investment income 39,996,463
------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (net of foreign capital gains tax of
$627,816) 61,285,469
Closed swap contracts 11,368,684
Foreign currency, forward contracts and foreign
currency related transactions (2,756,881)
------------
Net realized gain 69,897,272
------------
Change in net unrealized appreciation (depreciation) on:
Investments 773,385,702
Open swap contracts 5,764,347
Foreign currency, forward contracts and foreign
currency related transactions (76,980)
------------
Net unrealized gain 779,073,069
------------
Net realized and unrealized gain 848,970,341
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $888,966,804
============
</Table>
See accompanying notes to the financial statements. 21
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 39,996,463 $ 21,466,584
Net realized gain (loss) 69,897,272 (50,725,570)
Change in net unrealized appreciation (depreciation) 779,073,069 (169,635,084)
-------------- --------------
Net increase (decrease) in net assets from
operations 888,966,804 (198,894,070)
-------------- --------------
Distributions to shareholders from:
Net investment income
Class III (10,085,440) (14,313,177)
Class IV (6,160,152) (12,715,508)
Class VI (434,491) --
-------------- --------------
Total distributions from net investment income (16,680,083) (27,028,685)
-------------- --------------
Net share transactions (Note 4):
Class III 705,901,306 498,075,637
Class IV (249,572,651) 385,039,223
Class V 73,120,383 --
Class VI 432,206,936 --
-------------- --------------
Increase in net assets resulting from net share
transactions 961,655,974 883,114,860
-------------- --------------
Total increase in net assets 1,833,942,695 657,192,105
NET ASSETS:
Beginning of period 2,219,607,504 1,562,415,399
-------------- --------------
End of period (including accumulated undistributed
net investment income of $20,988,526 and
distributions in excess of net investment income of
$2,327,854, respectively) $4,053,550,199 $2,219,607,504
============== ==============
</Table>
22 See accompanying notes to the financial statements.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ------------ ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.82 $ 9.84 $ 9.04 $ 11.16 $ 6.31 $ 9.56
---------- ---------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.13+ 0.11+ 0.18+ 0.17+ 0.13+ 0.25
Net realized and unrealized gain
(loss) 2.77 (1.00) 0.80 (2.27) 4.77 (3.19)
---------- ---------- -------- -------- -------- --------
Total from investment operations 2.90 (0.89) 0.98 (2.10) 4.90 (2.94)
---------- ---------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.05) (0.13) (0.18) (0.02) (0.05) (0.19)
From net realized gains -- -- -- -- -- (0.12)
---------- ---------- -------- -------- -------- --------
Total distributions (0.05) (0.13) (0.18) (0.02) (0.05) (0.31)
---------- ---------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.67 $ 8.82 $ 9.84 $ 9.04 $ 11.16 $ 6.31
========== ========== ======== ======== ======== ========
TOTAL RETURN(a) 32.94%** (9.14)% 11.15% (18.79)% 77.43% (30.96)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $2,433,266 $1,215,653 $826,960 $560,205 $727,197 $524,741
Net expenses to average daily net
assets 1.11%* 1.16% 1.19%(b) 1.23% 1.18% 1.16%
Net investment income to average
daily net assets 2.62%* 1.12% 2.32% 1.69% 1.41% 2.75%
Portfolio turnover rate 24%** 59% 74% 90% 73% 76%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.01%* 0.02% 0.02% 0.02% 0.03% 0.21%
Purchase and redemption fees
consisted of the following per
share amounts:(c) $ 0.04 $ 0.05 $ 0.05 $ 0.03 -- --
</Table>
* Annualized.
** Not Annualized.
+ Computed using average shares outstanding throughout the period.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown. Calculation excludes purchase
premiums and redemption fees.
(b) Includes stamp duties and transfer taxes not reimbursed by the Manager,
which approximate .035% of average daily net assets.
(c) Effective March 1, 2000, the Fund adopted the provisions of the revised
AICPA Audit and Accounting Guide for Investment Companies which requires
the disclosure of the per share effect of purchase and redemption fees.
Periods prior to March 1, 2000 have not been restated to reflect this
change. Amounts calculated using average shares outstanding throughout
the period.
See accompanying notes to the financial statements. 23
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 -----------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999*
---------------- ------------ ---------- ---------- ---------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.81 $ 9.83 $ 9.03 $ 11.16 $ 6.31 $ 9.56
---------- ---------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.14+ 0.11+ 0.17+ 0.17+ 0.13+ 0.28
Net realized and unrealized gain
(loss) 2.75 (0.99) 0.82 (2.28) 4.77 (3.21)
---------- ---------- -------- -------- -------- --------
Total from investment operations 2.89 (0.88) 0.99 (2.11) 4.90 (2.93)
---------- ---------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.05) (0.14) (0.19) (0.02) (0.05) (0.20)
From net realized gains -- -- -- -- -- (0.12)
---------- ---------- -------- -------- -------- --------
Total distributions (0.05) (0.14) (0.19) (0.02) (0.05) (0.32)
---------- ---------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.65 $ 8.81 $ 9.83 $ 9.03 $ 11.16 $ 6.31
========== ========== ======== ======== ======== ========
TOTAL RETURN(a) 32.86%** (9.09)% 11.22% (18.82)% 77.76% (31.01)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $1,078,542 $1,003,594 $735,455 $467,619 $480,208 $261,187
Net expenses to average daily net
assets 1.07%* 1.12% 1.14%(b) 1.18% 1.13% 1.12%
Net investment income to average
daily net assets 2.78%* 1.16% 2.27% 1.73% 1.45% 2.87%
Portfolio turnover rate 24%** 59% 74% 90% 73% 76%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.01%* 0.02% 0.02% 0.02% 0.03% 0.21%
Purchase and redemption fees
consisted of the following per
share amounts:(c) $ 0.01 $ 0.02 $ 0.03 $ 0.03 -- --
</Table>
* Annualized.
** Not Annualized.
+ Computed using average shares outstanding throughout the period.
(a) The total return would have been lower had certain expenses not been
reimbursed during the periods shown. Calculation excludes purchase
premiums and redemption fees.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximate .04% of average daily net assets.
(c) Effective March 1, 2000, the Fund adopted the provisions of the revised
AICPA Audit and Accounting Guide for Investment Companies which requires
the disclosure of the per share effect of purchase and redemption fees.
Periods prior to March 1, 2000 have not been restated to reflect this
change. Amounts calculated using average shares outstanding throughout
the period.
24 See accompanying notes to the financial statements.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS V SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
AUGUST 4, 2003
(COMMENCEMENT
OF OPERATIONS) THROUGH
AUGUST 31, 2003
(UNAUDITED)
----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.81
-------
Income from investment operations:
Net investment income 0.02+
Net realized and unrealized gain 0.83
-------
Total from investment operations 0.85
-------
NET ASSET VALUE, END OF PERIOD $ 11.66
=======
TOTAL RETURN(a) 7.86%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $97,743
Net expenses to average daily net assets 1.00%*
Net investment income to average daily net assets 2.25%*
Portfolio turnover rate 24%***
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.01%*
</Table>
* Annualized.
** Not Annualized.
*** Not Annualized. Calculation represents portfolio turnover of the Fund
for the six months ending August 31, 2003.
+ Computed using average shares throughout the period.
(a) The total return would have been lower had certain expenses not been
reimbursed during the period shown. Calculation excludes purchase
premiums and redemption fees.
See accompanying notes to the financial statements. 25
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS VI SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
JUNE 30, 2003
(COMMENCEMENT
OF OPERATIONS) THROUGH
AUGUST 31, 2003
(UNAUDITED)
----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.45
--------
Income from investment operations:
Net investment income 0.04+
Net realized and unrealized gain 1.22
--------
Total from investment operations 1.26
--------
Less distributions to shareholders:
From net investment income (0.05)
--------
Total distributions (0.05)
--------
NET ASSET VALUE, END OF PERIOD $ 11.66
========
TOTAL RETURN(a) 12.13%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $443,999
Net expenses to average daily net assets 1.06%*
Net investment income to average daily net assets 2.29%*
Portfolio turnover rate 24%***
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.01%*
Purchase and redemption fees consisted of the following
per share amounts: $ 0.01
</Table>
* Annualized.
** Not Annualized.
*** Not annualized. Calculation represents portfolio turnover of the Fund
for the six months ending August 31, 2003.
+ Computed using average shares outstanding throughout the period.
(a) The total return would have been lower had certain expenses not been
reimbursed during the period shown. Calculation excludes purchase
premiums and redemption fees.
26 See accompanying notes to the financial statements.
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Emerging Markets Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund seeks high total return through investment in equity securities
traded in the securities markets of developing countries in Asia, Latin
America, the Middle East, Africa, and Europe ("Emerging Markets"). The
Fund's benchmark is the S&P/IFCI (Investable) Composite Index.
Throughout the six months ended August 31, 2003, the Fund had two classes
of shares outstanding: Class III and Class IV. Effective June 30, 2003,
the Fund also had Class VI shares outstanding. Effective August 4, 2003,
the Fund also had Class V shares outstanding.The principal economic
difference among the classes of shares is the level of shareholder service
fees borne by the classes. Eligibility for and automatic conversion among
the various classes of shares is generally based on the total amount of
assets invested in a particular fund or with GMO, as more fully outlined
in the Trust's prospectus.
At August 31, 2003, 0.2% of the Fund was invested in the GMO
Short-Duration Collateral Fund and 0.1% of the Fund was invested in the
GMO Alpha LIBOR Fund, separate funds of GMO Trust managed by GMO. Shares
of the GMO Short-Duration Collateral Fund and GMO Alpha LIBOR Fund are not
publicly available for direct purchase. The financial statements of the
GMO Short-Duration Collateral Fund and GMO Alpha LIBOR Fund should be read
in conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for
27
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
which market quotations are readily available are valued at the most
recent quoted bid price. Securities which are primarily traded on foreign
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, and those values are then
translated into U.S. dollars at the current exchange rate. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates fair value. Shares of other funds of the
Trust ("underlying funds") and other mutual funds are valued at their net
asset value as reported on each business day. 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.
Certain securities held by the Fund were valued on the basis of a price
provided by a principal market maker. These 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.
Indian regulators have alleged that the Fund violated certain conditions
under which it was granted permission to operate in India and have
restricted a portion of the Fund's locally held assets pending resolution
of the dispute. The amount of these restricted assets is small relative to
the size of the Fund, representing approximately 0.04% of the Fund's total
assets as of August 31, 2003. The valuation of this possible claim and all
matters relating to the Fund's response to these allegations are subject
to supervision and control of the Trust's Board of Trustees, and all costs
in respect of this matter being borne by the Fund.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of 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.
28
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 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. There were no forward foreign currency contracts
outstanding as of August 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. As of
August 31, 2003, there were no outstanding futures contracts.
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.
29
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Writing call options tends to decrease the Fund's exposure to the
underlying instrument. When the Fund writes a call or put option, an
amount equal to the premium received is recorded as a liability and
subsequently marked to market to reflect the current value of the option
written. Premiums received from writing options which expire are treated
as realized gains. Premiums received from writing options which are
exercised or closed are added to the proceeds or offset against the
amounts paid on the underlying future, security or currency transaction to
determine the realized gain or loss. The Fund as a writer of an option has
no control over whether the underlying future, security or currency may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the future, security or currency
underlying the written option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
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.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent the total return of
the security or index underlying the
30
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. The Fund may also enter into contracts for
differences in which the Fund agrees with the counterparty that its return
will be based on the relative performance of two different groups or
"baskets" of securities, adjusted by an interest rate payment. To the
extent that the relative performance of the two baskets of securities
exceeds or falls short of the offsetting interest rate obligation, the
Fund will receive a payment from or make a payment to the counterparty,
respectively. 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. The Fund also may enter into structured warrants, which are
derivatives that are economically similar to swaps and have risks similar
to swaps. 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. These financial instruments are not actively
traded on financial markets. The values assigned to these instruments are
based upon the best available information and because of the uncertainty
of the valuation, these values may differ significantly from the values
that would have been realized had a ready market for these instruments
existed, and the differences could be material. Entering into these
agreements involves, to varying degrees, elements of credit, legal, market
and documentation risk in excess of the amounts recognized 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 the price of the security or index
underlying these transactions. See Note 5 for a summary of all open swap
agreements as of August 31, 2003
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 investment of collateral, the risk of delay in recovery or
loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 2003, the Fund loaned securities having a market
value of $26,307,175 collateralized by cash in the amount of $27,962,695
which was invested in a short-term instrument.
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 carryover for
U.S. federal income tax
31
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
purposes. Therefore, no provision for U.S. federal income or excise tax is
necessary. Taxes on foreign interest and dividend income are withheld in
accordance with the applicable country's tax treaty with the United
States.
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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code of $184,350,946, $114,351,984 and $64,302,847 expiring in 2007, 2010
and 2011, respectively. The Fund has elected to defer to March 1, 2003
post-October capital losses of $19,381,010.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the
amortization of premiums and discounts. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. Interest
income on U.S. Treasury inflation indexed securities is accrued daily
based upon an inflation adjusted principal. Additionally, any increase in
the principal or face amount of the securities adjusted for inflation is
recorded as interest income. Dividends representing a return of capital
are reflected as a reduction of cost, when the amount of the return of
capital is conclusively determined. In determining the net gain or loss on
securities sold, the cost of securities is determined on the identified
cost basis.
32
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. Investment
income, common expenses and realized and unrealized gains and losses are
allocated pro-rata among the classes of shares of the Fund based on the
relative net assets of each class. Shareholder service fees, which are
directly attributable to a class of shares, are charged to that class'
operations.
PURCHASES AND REDEMPTIONS OF FUND SHARES
Effective April 1, 2002, the level of purchase premium and redemption fees
charged to the Fund are each .80%. Prior to April 1, 2002, the premium on
cash purchases of Fund shares was 1.20% of the amount invested and the fee
for cash redemptions was .40% of the amount redeemed. If the Manager
determines that any portion of a cash purchase or redemption is offset by
a corresponding cash redemption or purchase occurring on the same day, the
purchase premium or redemption fee charged by the Fund will be reduced by
100% with respect to that portion. In addition, the purchase premium or
redemption fee charged by the Fund may be waived if the Manager determines
the Fund is either substantially overweighted or underweighted in cash so
that a redemption or purchase will not require a securities transaction.
All purchase premiums and redemption fees are paid to and recorded by the
Fund as paid-in capital. These fees are allocated relative to each class'
net assets on the share transaction date. For the six months ended
August 31, 2003 and the year ended February 28, 2003, the Fund received
$7,568,075 and $7,148,446 in purchase premiums and $54,244 and $79,299 in
redemption fees, respectively. There is no premium for reinvested or
in-kind distributions.
INVESTMENT RISK
Investments in securities of emerging countries present certain risks that
are not inherent in many other investments. Many emerging countries
present elements of political and/or economic instability. The securities
markets of emerging countries are generally smaller and less developed
than the securities markets of the U.S. and developed foreign markets.
Further, countries may impose various types of foreign currency
regulations or controls which may impede the Fund's ability to repatriate
amounts it receives. The Fund may acquire interests in securities in
anticipation of improving conditions in the related countries. These
factors may result in significant volatility in the values of its
holdings. The markets in emerging countries are relatively illiquid.
Accordingly, the Fund may not be able to realize in an actual sale amounts
approximating those used to value its holdings.
33
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .81% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .15%
for Class III shares, .105% for Class IV shares, .085% for Class V shares
and .055% for Class VI shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, custody
fees, fees and expenses of the independent Trustees of the Trust
(including legal fees), brokerage commissions and other investment-related
costs, hedging transaction fees, extraordinary, non-recurring and certain
other unusual expenses (including taxes), securities lending fees and
expenses, interest expense and transfer taxes) exceed the management fee.
The Fund incurs fees and expenses indirectly as a shareholder in GMO Alpha
LIBOR Fund and GMO Short-Duration Collateral Fund. For the six months
ended August 31, 2003, indirect operating expenses (excluding
investment-related expenses) were less than .001% (annualized) of the
Fund's average daily net assets, and indirect investment-related expenses
(including, but not limited to, interest expense, foreign audit expense,
and investment-related legal expense) were less than .001% (annualized) of
the Fund's average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $20,741. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003 were as
follows:
<Table>
<Caption>
Purchases Sales
-------------- ------------
U.S. Government securities $ 18,915,224 $ --
Investments (non-U.S. Government securities) 1,639,000,441 692,821,921
</Table>
34
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$3,374,336,397 $773,516,743 $(128,761,839) $644,754,904
</Table>
4. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
-------------------------- --------------------------
Shares Amount Shares Amount
Class III: ----------- ------------- ----------- -------------
Shares sold 91,299,398 $ 927,517,018 78,465,027 $ 750,254,514
Shares issued to shareholders in reinvestment
of distributions 713,398 7,704,694 1,032,167 9,789,196
Shares repurchased (21,231,791) (229,320,406) (25,770,379) (261,968,073)
----------- ------------- ----------- -------------
Net increase 70,781,005 $ 705,901,306 53,726,815 $ 498,075,637
=========== ============= =========== =============
</Table>
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
-------------------------- --------------------------
Shares Amount Shares Amount
Class IV: ----------- ------------- ----------- -------------
Shares sold 26,610,827 $ 267,991,206 39,386,555 $ 388,617,328
Shares issued to shareholders in reinvestment
of distributions 361,068 3,892,310 698,767 6,650,570
Shares repurchased (48,354,032) (521,456,167) (948,372) (10,228,675)
----------- ------------- ----------- -------------
Net increase (decrease) (21,382,137) $(249,572,651) 39,136,950 $ 385,039,223
=========== ============= =========== =============
</Table>
35
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Period from August 4, 2003
(commencement of
operations)
through August 31, 2003
(Unaudited)
----------------------------
Shares Amount
Class V: ------------ --------------
Shares sold 33,372,702 $ 360,758,914
Shares issued to shareholders in reinvestment of
distributions -- --
Shares repurchased (24,990,315) (287,638,531)
----------- -------------
Net increase 8,382,387 $ 73,120,383
=========== =============
</Table>
<Table>
<Caption>
Period from June 30, 2003
(commencement of
operations)
through August 31, 2003
(Unaudited)
--------------------------
Shares Amount
Class VI: ----------- -------------
Shares sold 38,052,681 $ 431,772,445
Shares issued to shareholders in reinvestment of
distributions 40,268 434,491
Shares repurchased -- --
----------- -------------
Net increase 38,092,949 $ 432,206,936
=========== =============
</Table>
5. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
TOTAL RETURN SWAP AGREEMENTS
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
----------- ---------- -------------------------------------------------- --------------
$10,365,539 9/11/03 Agreement with Merrill Lynch International dated $2,465,493
9/9/02 to receive the notional amount multiplied
by the return of the MSCI Taiwan Index and to pay
the notional amount multiplied by the 3 month
LIBOR adjusted by a specific spread.
</Table>
36
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
TOTAL RETURN SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
----------- ---------- -------------------------------------------------- --------------
$ 5,910,559 9/25/03 Agreement with Morgan Stanley & Co. International $ 806,580
Limited dated 9/20/02 to receive the notional
amount multiplied by the return on the MSCI
Thailand Index and to pay the notional amount
multiplied by the 3 month LIBOR adjusted by a
specified spread.
2,000,000 10/9/03 Agreement with Morgan Stanley & Co. International 485,027
Limited dated 10/9/02 to receive the notional
amount multiplied by the return on the MSCI India
Index and to pay the notional amount multiplied by
the 3 month LIBOR adjusted by a specified spread.
5,000,000 10/18/03 Agreement with Morgan Stanley & Co. International 601,390
Limited dated 10/8/02 to receive the notional
amount multiplied by the return of the MSCI India
Index and to pay the notional amount multiplied by
the 3 month LIBOR adjusted by a specified spread.
4,000,000 10/15/03 Agreement with Morgan Stanley & Co. International 389,633
Limited dated 10/15/02 to receive the notional
amount multiplied by the return of the MSCI
Thailand Index and to pay the notional amount
multiplied by the 3 month LIBOR adjusted by a
specified spread.
2,985,515 11/03/03 Agreement with Citibank N.A. dated 5/02/03 to (102,152)
receive the notional amount multiplied by the
return of Pohang Iron & Steel Co. and to pay the
notional amount multiplied by the 3 month LIBOR
adjusted by a specified spread.
</Table>
37
<Page>
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
TOTAL RETURN SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
----------- ---------- -------------------------------------------------- --------------
$ 9,766,787 11/20/03 Agreement with Morgan Stanley & Co. International $ 156,067
Limited dated 5/16/03 to receive the notional
amount multiplied by the return of KT Corp. and to
pay the notional amount multiplied by the 3 month
LIBOR adjusted by a specified spread.
1,401,048 1/14/04 Agreement with Morgan Stanley & Co. International 267,833
Limited dated 1/09/03 to receive the notional
amount multiplied by the return of the MSCI India
Index and to pay the notional amount multiplied by
the 3 month LIBOR adjusted by a specified spread.
10,600,000 3/10/04 Agreement with Morgan Stanley & Co. International 159,928
Limited dated 3/07/03 to receive the notional
amount multiplied by the return of the MSCI India
Index and to pay the notional amount multiplied by
the 3 month LIBOR adjusted by a specified spread.
4,922,665 5/26/04 Agreement with Morgan Stanley & Co. International (418,037)
Limited dated 5/21/03 to receive the notional
amount multiplied by the return of Copal
Electronics and to pay the notional amount
multiplied by the 3 month LIBOR adjusted by a
specified spread.
----------
$4,811,762
==========
</Table>
38
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 80.9%
ARGENTINA -- 4.5%
USD 6,931,000 Argentina Government International Bond, 12.00%,
due 02/01/20(a) 1,940,680
DEM 20,000,000 Argentina Government International Bond, 5.87%,
due 03/31/23(a) 5,473,137
USD 31,390,000 Argentina Government International Bond,
Variable Rate, 3 mo. USD LIBOR + 5.75%, 6.86%,
due 04/06/04(a) 7,957,365
ARS 6,513,873 Provincia Corrientes Series 1, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, 3.21%,
due 04/01/09(a)(b) 297,504
ARS 2,500,000 Provincia Corrientes Series 2, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, 3.21%,
due 04/01/09(a)(b) 104,250
USD 32,000,000 Republic of Argentina Discount Bond Series L-GL,
Variable Rate, 6 mo. LIBOR + .81%, 2.06%, due
03/31/23(a) 16,480,000
DEM 3,830,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. DEM LIBOR + .81%, 3.06%,
due 03/31/23(a) 999,732
USD 26,545,000 Republic of Argentina Global Bond, 12.13%, due
02/25/19(a) 7,830,775
USD 8,000,000 Republic of Argentina Global Bond, 9.75%, due
09/19/27(a) 2,160,000
DEM 5,000,000 Republic of Argentina Global Bond, 9.00%, due
11/19/08(a)(b) 736,768
USD 4,040,000 Republic of Argentina Global Bond, 8.88%, due
03/01/29(a) 893,486
USD 6,617,275 Republic of Argentina Global Bond Series 2018,
12.25%, due 06/19/18(c)(a) 1,852,837
USD 198,230 Republic of Argentina Global Bond, Series 2008,
7.00%, due 12/19/08(a) 59,965
EUR 3,500,000 Republic of Argentina Global Bond, Series FEB,
8.00%, due 02/26/08(a) 1,075,942
ARS 15,432,863 Republic of Argentina INDER Certificates, 6.00%,
due 04/15/06(a)(b) 745,296
USD 512,000 Republic of Argentina Par Bond Series L-GP,
Variable Rate, Step Up, 6.00%, due 03/31/23(a) 249,600
USD 2,000,000 Republic of Argentina Pro 4, 2.00%, due
12/28/10(a) 288,400
USD 96,602 Republic of Argentina Pro 4 Coupon Certificates,
0.00%, due 12/28/49(a)(b) --
EUR 2,500,000 Republic of Argentina Series EMTN,
Variable Rate, 3 mo. EURIBOR +5.10%, 7.24%,
due 12/22/04(a)(b) 693,049
USD 64,800,000 Republic of Argentina, 12% Capitalization Bond,
PIK, due 06/19/31(c)(a) 16,848,000
-------------
66,686,786
-------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
BOSNIA & HERZEGOVINA -- 0.6%
DEM 25,244,000 Bosnia & Herzegovina Series A, Step Up, 3.00%, due
12/11/17 8,714,951
-------------
BRAZIL -- 20.6%
USD 307,853 Brazil Capitalization Bond Series L, PIK, 8.00%,
due 04/15/14 276,875
USD 194,000,000 Brazil DCB (Bearer),
Variable Rate, 6 mo. LIBOR + .88%, 2.19%, due
04/15/12(c) 155,927,500
USD 84,500,000 Brazil DCB (Registered) Series RG,
Variable Rate, 6 mo. LIBOR + .88%, 2.19%, due
04/15/12 67,916,875
USD 5,000,000 Brazil DCB Series DL,
Variable Rate, 6 mo. LIBOR + .88%, 2.19%, due
04/15/12 4,018,750
USD 49,525,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 2.13%, due
04/15/24 37,639,000
USD 20,603,238 Brazil FLIRB (Registered),
Variable Rate, Step Up, 2.13%, due 04/15/09 17,821,801
USD 14,850,864 Brazil MYDFA Trust Certificates Reg S,
Variable Rate, 6 mo. LIBOR + .81%, 2.06%, due
09/15/07 13,365,777
USD 8,567,101 Brazilian Government International Bond, 6.00%,
due 09/15/13 6,871,965
-------------
303,838,543
-------------
BULGARIA -- 2.3%
USD 5,000,000 Bulgaria Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 1.94%, due
07/28/24 4,812,500
USD 42,000,000 Bulgaria Discount Bond, Interest Strips, Series
62, 0.00%, due 01/28/10 10,294,200
USD 42,000,000 Bulgaria Discount Bond, Interest Strips, Series
63, 0.00%, due 01/28/17 6,757,800
USD 10,822,000 Republic of Bulgaria Reg S, 8.25%, due 01/15/15 11,904,200
-------------
33,768,700
-------------
CHINA -- 0.9%
USD 11,500,000 China Government International Bond, 6.80%, due
05/23/11(c) 13,049,700
-------------
COLOMBIA -- 0.7%
USD 2,000,000 Republic of Colombia, 11.85%, due 03/09/28 1,880,000
USD 8,000,000 Republic of Colombia, 8.70%, due 02/15/16 7,600,000
-------------
9,480,000
-------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
COSTA RICA -- 0.4%
USD 2,000,000 Costa Rica Government International Bond, 10.00%,
due 08/01/20 2,350,000
USD 3,000,000 Republic of Costa Rica, 8.05%, due 01/31/13 3,232,500
-------------
5,582,500
-------------
DOMINICAN REPUBLIC -- 2.5%
USD 42,557,000 Dominican Republic Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 2.06%, due
08/30/24 31,066,610
USD 6,000,000 Dominican Republic International Bond RegS, 9.04%,
due 01/23/13 5,670,000
-------------
36,736,610
-------------
ECUADOR -- 1.2%
USD 2,900,628 Republic of Ecuador PDI (Global Bearer
Capitalization Bond), PIK,
Variable Rate, 6 mo. LIBOR + .81%, 2.06%, due
02/27/15(b) 1,260,967
USD 27,587,000 Republic of Ecuador Reg S,
Variable Rate, Step Up, 7.00%, due 08/15/30 16,345,298
-------------
17,606,265
-------------
EL SALVADOR -- 0.4%
USD 6,000,000 Republic of El Salvador 144A, 8.50%, due 07/25/11 6,420,000
-------------
IVORY COAST -- 1.6%
FRF 37,500,000 Ivory Coast Discount Bond,
Variable Rate, Step Up, 3.50%, due 03/31/28(a) 1,945,720
USD 79,600,000 Ivory Coast FLIRB Series YR20,
Variable Rate, Step Up, 2.00%, due 03/29/18(a) 13,333,000
FRF 34,905,000 Ivory Coast FLIRB,
Variable Rate, Step Up, 2.00%, due 03/29/18(a) 993,171
FRF 256,889,500 Ivory Coast PDI,
Variable Rate, Step Up, 1.90%, due 03/29/18(a) 7,739,382
-------------
24,011,273
-------------
JAMAICA -- 0.1%
USD 2,000,000 Jamaica Government International Bond, 10.63%, due
06/20/17 1,690,000
-------------
JORDAN -- 1.0%
USD 1,776,315 Hashemite Kingdom of Jordan IAB,
Variable Rate, 6 mo. LIBOR + .81%, 1.81%, due
12/23/05 1,731,907
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
JORDAN -- CONTINUED
USD 14,750,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step Up, 6.00%, due 12/23/23 13,422,500
-------------
15,154,407
-------------
KAZAKHSTAN -- 0.3%
USD 4,000,000 Kaztransoil Reg S, 8.50%, due 07/06/06 4,220,000
-------------
MACEDONIA -- 1.0%
USD 18,643,891 Macedonia Capitalization Bond, PIK,
Variable Rate, 6 mo. LIBOR + .81%, 1.93%, due
07/13/12 14,542,235
-------------
MALAYSIA -- 0.6%
USD 8,000,000 Malaysia Global Bond, 7.50%, due 07/15/11 9,234,846
-------------
MEXICO -- 8.2%
USD 52,750,000 Mexico Global Bond, 11.50%, due 05/15/26(c) 73,586,250
USD 7,500,000 Mexico Global Bond Series MTN, 8.30%, due 08/15/31 8,051,250
USD 6,000,000 Mexico Government International Bond, 7.50%, due
04/08/33 5,940,000
ITL 11,000,000,000 Mexico Government International Bond, Series EMTN,
11.00%, due 05/08/17 8,135,540
USD 12,000,000 Pemex Master Trust, 8.63%, due 02/01/22(c) 12,720,000
USD 10,000,000 Petroleos Mexicanos, Series P, 9.50%, due 09/15/27 11,737,500
-------------
120,170,540
-------------
NIGERIA -- 1.5%
USD 27,000,000 Central Bank of Nigeria Par Bond Series WW, Step
Up, 6.25%, due 11/15/20 21,870,000
-------------
PANAMA -- 2.3%
USD 5,000,000 Republic of Panama, 9.63%, due 02/08/11 5,650,000
USD 5,000,000 Republic of Panama, 9.38%, due 07/23/12(c) 5,612,500
USD 4,000,000 Republic of Panama, 9.38%, due 01/16/23 4,240,000
USD 8,000,000 Republic of Panama Par Bond,
Variable Rate, Step Up, 4.75%, due 07/17/26 6,080,000
USD 14,317,875 Republic of Panama PDI Bond,
Variable Rate, 6 mo. LIBOR + .81%, 1.94%, due
07/17/16(c) 12,313,373
-------------
33,895,873
-------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
PERU -- 2.3%
USD 7,236,000 Peru Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 2.19%, due
03/07/27 6,349,590
USD 12,925,000 Peru FLIRB,
Variable Rate, Step Up, 4.50%, due 03/07/17 10,857,000
USD 19,000,000 Peru Par Bond,
Variable Rate, Step Up, 3.00%, due 03/07/27 10,260,000
USD 10,000,000 Peru Trust II Series 1998-A LB, 0.00%, due
02/28/16 5,808,000
-------------
33,274,590
-------------
PHILIPPINES -- 5.0%
USD 4,310,000 Central Bank of the Philippines Par Bond Series B,
Variable Rate, Step Up, 6.50%, due 12/01/17 4,202,250
USD 59,501,000 Central Bank of the Philippines Series A, 8.60%,
due 06/15/27 49,980,840
EUR 12,000,000 Philippine Government International Bond, 9.13%,
due 02/22/10 13,965,288
USD 5,500,000 Philippine Government International Bond, 8.38%,
due 03/12/09(c) 5,747,500
-------------
73,895,878
-------------
POLAND -- 0.4%
USD 6,000,000 Poland Government International Bond, 6.25%, due
07/03/12 6,408,000
-------------
QATAR -- 1.2%
USD 13,100,000 Qatar Government International Bond, 9.75%, due
06/15/30 17,357,500
-------------
RUSSIA -- 7.5%
USD 10,000,000 OAO Gazprom 144A, 9.63%, due 03/01/13 10,450,000
USD 109,694,799 Russian Federation Reg S,
Variable Rate, Step Up, 5.00%, due 03/31/30(c) 100,370,741
-------------
110,820,741
-------------
SOUTH KOREA -- 0.5%
USD 6,000,000 Export Import Bank of Korea, 7.10%, due 03/15/07 6,632,046
-------------
TUNISIA -- 0.1%
JPY 200,000,000 Banque Centrale De Tunisie Series 6RG, 4.35%, due
08/15/17 1,765,513
-------------
UKRAINE -- 0.1%
USD 1,493,340 Ukraine Government International Bond Series,
11.00%, due 03/15/07 1,635,207
-------------
</Table>
See accompanying notes to the financial statements.
5
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
UNITED STATES -- 5.3%
ASSET-BACKED SECURITIES -- 4.4%
USD 26,005,105 BEA CBO Series 98-1A Class A2A, 144A, 6.72%, due
06/15/10 18,983,726
USD 4,228,400 California Infrastructure PG&E Series 97-1 Class
A7, 6.42%, due 09/25/08 4,507,871
USD 13,160,186 Chyps CBO Series 97-1A Class A2A, 144A, 6.72%, due
01/15/10 8,685,723
USD 4,800,000 Meridian Funding Co LLC, MBIA, 144A,
Variable Rate, 1 mo. LIBOR + .38%, 1.49%, due
06/22/11 4,792,176
USD 2,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2,
144A, Step Up, 6.33%, due 09/15/09 2,050,880
GBP 4,000,000 RMAC Series 03-NS1A Class A2A, 144A,
Variable Rate, 3 mo. GBP LIBOR + .45%, 1.63%,
due 06/12/35 6,330,164
USD 24,243,157 SHYPPCO Finance Co Series 1I Class A-2B, 6.64%,
due 06/15/10 19,879,388
-------------
65,229,928
-------------
U.S. GOVERNMENT -- 0.9%
USD 12,506,560 U.S. Treasury Inflation Indexed Note, 3.63%, due
01/15/08(d) 13,766,987
-------------
TOTAL UNITED STATES 78,996,915
-------------
URUGUAY -- 0.4%
USD 5,250,000 Banco Central Del Uruguay Series B, 6.75%, due
03/21/21 4,567,500
USD 84,000 Uruguay Government International Bond, 7.63%, due
01/20/12(b) 51,240
USD 1,000,000 Uruguay Government International Bond, 7.00%, due
04/07/08(b) 660,000
-------------
5,278,740
-------------
VENEZUELA -- 5.8%
USD 928,288 Republic of Venezuela DCB DL Odd Lot,
Variable Rate, 6 mo. LIBOR + .88%, 1.88%, due
12/18/07(b) 782,083
USD 7,891,305 Republic of Venezuela DCB IL,
Variable Rate, 6 mo. LIBOR + .88%, 1.88%, due
12/18/08 6,727,337
USD 19,107,000 Republic of Venezuela Discount Bond Series W-B,
Variable Rate, 6 mo. LIBOR + .81%, 2.06%, due
03/31/20 13,757,040
DEM 34,500,000 Republic Of Venezuela Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 3.38%, due
03/31/20 16,316,263
CHF 15,238,021 Republic of Venezuela FLIRB Series Sfr,
Variable Rate, CHF 6 mo. LIBOR + .88%, 1.25%,
due 03/31/07 8,948,822
DEM 20,490,000 Republic of Venezuela Global Bond, Step Up, 7.38%,
due 10/29/08 8,856,546
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
VENEZUELA -- CONTINUED
USD 3,653,108 Republic of Venezuela New Money Bond Series A Odd
Lot,
Variable Rate, 6 mo. LIBOR + 1%, 2.00%, due
12/18/05(b) 3,150,804
USD 2,558,823 Republic of Venezuela New Money Bond Series A,
Variable Rate, 6 mo. LIBOR + 1%, 2.00%, due
12/18/05 2,334,926
USD 765,885 Republic of Venezuela New Money Bond Series B Odd
Lot,
Variable Rate, 6 mo. LIBOR + .88%, 1.88%, due
12/18/05(b) 660,576
DEM 465,000 Republic of Venezuela New Money Bond Series B,
Variable Rate, 6 mo. DEM LIBOR + .88%, 2.94%,
due 12/15/05 199,033
USD 294,118 Republic of Venezuela New Money Bond Series B,
Variable Rate, 6 mo. LIBOR + .88%, 1.88%, due
12/18/05 268,382
FRF 54,175,000 Republic of Venezuela Par Bond, 7.71%, due
03/31/20 7,594,010
DEM 24,500,000 Republic of Venezuela Par Bond, 6.66%, due
03/31/20 10,555,435
USD 1,904,705 Republic of Venuzuela FLIRB Series A,
Variable Rate, 6 mo. LIBOR + .88%, 2.19%, due
03/31/07 1,711,853
USD 5,225,000 Venezuela Government International Bond, 2.06%,
due 03/31/20 3,762,000
-------------
85,625,110
-------------
VIETNAM -- 1.5%
USD 4,000,000 Vietnam Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 2.06%, due
03/13/28 3,280,000
USD 19,750,000 Vietnam Par Bond,
Variable Rate, Step Up, 3.50%, due 03/12/28 13,232,500
USD 6,000,000 Vietnam PDI,
Variable Rate, Step Up, 4.00%, due 03/14/16 5,400,000
-------------
21,912,500
-------------
YUGOSLAVIA -- 0.1%
USD 4,000,000 Second Emerging Markets Series EMTN, 0.00%, due
07/15/06 1,520,000
-------------
TOTAL DEBT OBLIGATIONS (COST $1,150,474,505) 1,191,795,969
-------------
LOAN ASSIGNMENTS -- 10.3%
ALGERIA -- 2.4%
JPY 266,770,049 Algeria Tranche 1 Loan Agreement, JPY 6 mo. LIBOR
+ .8125%, (0.9375%), due 09/04/06 2,183,454
JPY 4,243,886,220 Algeria Tranche 3 Loan Agreement, JPY LIBOR +
.8125%, (0.9375%), due 03/04/10 33,280,390
-------------
35,463,844
-------------
</Table>
See accompanying notes to the financial statements.
7
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
CAMEROON -- 0.2%
NLG 23,084,718 Cameroon Loan Agreement (No Tranche specified,
dated January 31, 1981)* 1,604,457
FRF 18,396,841 Republic of Cameroon Tranche B, (dated January 30,
1979)* 431,081
-------------
2,035,538
-------------
CONGO REPUBLIC (BRAZZAVILLE) -- 0.4%
FRF 102,097,963 Republic of Congo Loan Agreement* 2,221,508
USD 8,496,466 Republic of Congo Loan Agreement* 1,104,541
EUR 14,565,612 Republic of Congo Loan Agreement* 2,078,906
-------------
5,404,955
-------------
INDONESIA -- 2.7%
JPY 255,420,000 Republic of Indonesia Loan Agreement, dated
January 1, 1994 (1.00417%), due 03/28/13 1,795,033
USD 5,203,000 Republic of Indonesia Loan Agreement, dated
January 1, 1994 (2.10625%), due 03/29/13 4,058,340
USD 3,900,000 Republic of Indonesia Loan Agreement, dated June
14, 1995 LIBOR + .625%, (2.125%), due 12/14/19 2,533,830
USD 3,900,000 Republic of Indonesia Loan Agreement, dated June
14, 1995 LIBOR + .625%, (2.125%), due 12/14/19 2,533,831
USD 5,200,000 Republic of Indonesia Loan Agreement, dated June
14, 1995 LIBOR + .625%, (2.8125%), due 12/14/19 3,378,440
USD 2,850,000 Republic of Indonesia Loan Agreement, dated March
25, 1997 LIBOR + .625%, (2.0625%), due 03/25/05 2,404,685
USD 2,850,000 Republic of Indonesia Loan Agreement, dated March
25, 1997 LIBOR + .625%, (2.0625%), due 03/25/05 2,404,685
USD 3,800,000 Republic of Indonesia Loan Agreement, dated March
25, 1997 LIBOR + .625%, (2.0625%), due 03/25/05 3,206,246
USD 6,090,000 Republic of Indonesia Loan Agreement, dated May
21, 1996 LIBOR + .625%, (2.00%), due 05/21/04 5,333,328
USD 8,120,000 Republic of Indonesia Loan Agreement, dated May
21, 1996 LIBOR + .625%, (2.00%), due 05/21/04 7,111,104
USD 6,090,000 Republic of Indonesia Loan Agreement, dated May
21, 1996 LIBOR + .625%, (2.75%), due 05/21/04 5,333,328
-------------
40,092,850
-------------
</Table>
See accompanying notes to the financial statements.
8
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
JAMAICA -- 0.0%
USD 96,590 Jamaica Refinancing Agreement Tranche B, LIBOR +
.8125%, (2.125%), due 11/15/04 86,553
-------------
86,553
-------------
MOROCCO -- 0.5%
USD 8,250,000 Morocco Restructuring and Consolidating Agreement
Tranche A, 6 mo. LIBOR + .8125% (2.03125),
due 01/01/09 7,920,000
-------------
7,920,000
-------------
RUSSIA -- 4.1%
EUR 5,000,000 International Bank for Economic Cooperation Loan
Agreement*(b) 4,446,495
DEM 15,000,000 International Bank for Economic Cooperation Loan
Agreement*(b) 6,813,550
USD 8,222,222 International Investment Bank Loan Agreement*(b) 8,057,777
USD 29,080,019 Russia Foreign Trade Obligations*(b) 29,548,207
USD 10,000,000 Russia Foreign Trade Obligations*(b) 10,535,000
DEM 2,503,894 Russia Foreign Trade Obligations*(b) 1,132,314
-------------
60,533,343
-------------
TOTAL LOAN ASSIGNMENTS (COST $109,348,163) 151,537,083
-------------
LOAN PARTICIPATIONS -- 8.9%
ALGERIA -- 1.1%
JPY 175,000,000 Algeria Tranche 3 Loan Agreement, JPY Long Term
Prime +.1875%, (2.3875%), (Participation with
Salomon), due 03/04/10 1,368,912
JPY 656,250,000 Algeria Tranche 3 Loan Agreement, JPY Long Term
Prime +.1875%, (2.3875%), (Participation with
Salomon), due 03/04/10 5,149,718
JPY 1,177,105,265 Algeria Tranche S1, JPY Long Term Prime + .1875%,
(2.3625%), (Participation with Merrill Lynch),
due 03/04/10 9,230,813
-------------
15,749,443
-------------
CAMEROON -- 0.0%
NLG 4,968,184 Cameroon Loan Agreement, (No Tranche specified,
dated January 31, 1981), (Participation with
Salomon)* 352,198
-------------
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
INDONESIA -- 0.4%
USD 1,192,763 Republic of Indonesia Loan Agreement, 6 mo. LIBOR
+.70%, (1.95%), (Participation with Deutsche
Bank), due 10/05/05 1,097,342
USD 480,000 Republic of Indonesia Loan Agreement, dated June
14, 1995 LIBOR + .625%, (2.125%), (Participation
with Salomon), due 12/14/19 313,170
USD 480,000 Republic of Indonesia Loan Agreement, dated June
14, 1995 LIBOR + .625%, (2.125%), (Participation
with Salomon), due 12/14/19 313,170
USD 640,000 Republic of Indonesia Loan Agreement, dated June
14, 1995 LIBOR + .625%, (2.125%), (Participation
with Salomon), due 12/14/19 417,560
USD 558,000 Republic of Indonesia Loan Agreement, dated March
25, 1997 LIBOR + .625%, (2.0625%),
(Participation with Salomon), due 03/25/05 458,035
USD 558,000 Republic of Indonesia Loan Agreement, dated March
25, 1997 LIBOR + .625%, (2.0625%),
(Participation with Salomon), due 03/25/05 458,035
USD 744,000 Republic of Indonesia Loan Agreement, dated March
25, 1997 LIBOR + .625%, (2.0625%),
(Participation with Salomon), due 03/25/05 610,714
USD 570,000 Republic of Indonesia Loan Agreement, dated May
21, 1996 LIBOR + .625%, (2.00%), (Participation
with Salomon), due 05/21/04 527,472
USD 570,000 Republic of Indonesia Loan Agreement, dated May
21, 1996 LIBOR + .625%, (2.00%), (Participation
with Salomon), due 05/21/04 527,472
USD 760,000 Republic of Indonesia Loan Agreement, dated May
21, 1996 LIBOR + .625%, (2.00%), (Participation
with Salomon), due 05/21/04 703,296
-------------
5,426,266
-------------
JAMAICA -- 0.0%
USD 156,250 Jamaica Refinancing Agreement Tranche B, LIBOR +
.8125%, (2.125%), (Participation with JP Morgan
Chase), due 11/15/04 144,255
USD 781,250 Jamaica Refinancing Agreement Tranche B, LIBOR +
.8125%, (2.125%), (Participation with Salomon),
due 11/15/04 730,894
-------------
875,149
-------------
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
RUSSIA -- 6.9%
DEM 3,500,000 International Bank for Economic Cooperation Loan
Agreement, (Participation with Salomon)*(b) 1,598,240
USD 4,000,000 International Bank for Economic Cooperation Loan
Agreement, (Participation with UBS)*(b) 3,920,000
DEM 7,500,000 International Investment Bank Loan (Participation
with Mizuho)*(b) 3,410,185
JPY 900,000,000 International Investment Bank Loan Agreement,
(Participation with Bank of America)*(b) 6,556,394
USD 26,315,860 Russian Paris Club Debt, (Participation with
Deutsche Bank), due 08/16/20 17,160,572
EUR 16,102,711 Russian Paris Club Debt, (Participation with
Deutsche Bank), due 08/20/16 13,285,893
EUR 46,349,340 Russian Paris Club Debt, (Participation with
Deutsche Bank), due 08/20/20 38,246,625
EUR 11,079,612 Russian Paris Club Debt, (Participation with
Deutsche Bank), due 08/20/20 8,943,198
EUR 11,388,605 Russian Paris Club Debt, (Participation with
Deutsche Bank), due 08/20/20 9,192,610
-------------
102,313,717
-------------
SERBIA -- 0.5%
USD 8,352,801 Serbia New Financing Agreement (Participation with
JP Morgan Chase)* 5,763,432
USD 3,000,000 Serbia Trade & Deposit Facility Agreement
(Participation with JP Morgan Chase)* 1,050,000
-------------
6,813,432
-------------
TOTAL LOAN PARTICIPATIONS (COST $95,452,189) 131,530,205
-------------
PROMISSORY NOTES -- 0.3%
NIGERIA -- 0.3%
USD 12,000,000 Central Bank of Nigeria Promissory Notes Series
RC, 5.09%, due 1/5/10 4,320,000
-------------
TOTAL PROMISSORY NOTES (COST $5,081,893) 4,320,000
-------------
</Table>
See accompanying notes to the financial statements.
11
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PRINCIPAL
AMOUNT DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
MUTUAL FUNDS -- 3.0%
353,939 GMO Alpha LIBOR Fund 8,551,164
1,418,366 GMO Short-Duration Collateral Fund 35,757,008
-------------
TOTAL MUTUAL FUNDS (COST $44,827,514) 44,308,172
-------------
CALL OPTIONS PURCHASED -- 0.1%
OPTIONS ON BONDS -- 0.1%
USD 20,000,000 China Government International Bond, 6.80%, due
5/23/11, Expires 9/15/03, Strike 115.00 343,290
USD 4,000,000 Mexico Global Bond, 7.50%, due 04/08/33, Expires
04/29/04 Strike 103.00 35,475
USD 2,000,000 Qatar Government International Bond, 9.75%, due
6/15/30, Expires 2/2/04, Strike 125.00 38,014
USD 3,000,000 Qatar Government International Bond, 9.75%, due
6/15/30, Expires 2/2/04, Strike 133.00 71,451
USD 3,000,000 Qatar Government International Bond, 9.75%, due
6/15/30, Expires 9/23/03, Strike 141.00 214,125
USD 3,000,000 Qatar Government International Bond, 9.75%, due
6/15/30, Expires 9/23/03, Strike 145.00 --
USD 5,000,000 Qatar Government International Bond, 9.75%, due
6/15/30, Expires 9/8/03, Strike 126.50 --
USD 3,000,000 Qatar Government International Bond, 9.75%, due
6/15/30, Expires 9/8/03, Strike 141.50 217,051
-------------
919,406
-------------
TOTAL CALL OPTIONS PURCHASED (COST $1,351,300) 919,406
-------------
PUT OPTIONS PURCHASED -- 0.1%
OPTIONS ON INTEREST RATE SWAPS -- 0.0%
USD 50,000,000 KRW Swaption, Expires 06/01/05, Strike 7.5% 21,782
USD 75,000,000 KRW Swaption, Expires 06/07/05, Strike 7.42% 26,599
-------------
48,381
-------------
</Table>
See accompanying notes to the financial statements.
12
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT/
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
CROSS CURRENCY OPTIONS -- 0.1%
EUR 25,000,000 EUR Put/USD Call, Expires 10/1/03, Strike 1.1150 741,649
-------------
TOTAL PUT OPTIONS PURCHASED (COST $2,232,244) 790,030
-------------
RIGHTS AND WARRANTS -- 0.0%
MEXICO -- 0.0%
33,077,000 Mexico Par Bond Series B Warrants, Expires
6/30/04** 413,463
33,077,000 Mexico Par Bond Series C Warrants, Expires
6/30/05** 82,692
33,077,000 Mexico Par Bond Series D Warrants, Expires
6/30/06** 33,077
54,324,000 United Mexican States Warrants, Expires 12/31/09** 135,810
-------------
665,042
-------------
NIGERIA -- 0.0%
25,000 Central Bank of Nigeria Payment Adjusted Warrants,
Expires 11/15/20** --
-------------
URUGUAY -- 0.0%
4,000,000 Banco Central Del Uruguay Warrants, Expires
11/15/20** --
-------------
VENEZUELA -- 0.0%
164,215 Republic of Venezuela Bond Warrants, Expires
4/18/20** --
262,360 Republic of Venezuela Recovery Warrants, Expires
4/15/20** --
-------------
TOTAL RIGHTS AND WARRANTS (COST $0) 665,042
-------------
</Table>
See accompanying notes to the financial statements.
13
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE ($) DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.5%
CASH EQUIVALENTS -- 0.5%
USD 7,342,108 Merrimac Cash Fund 7,342,108
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $7,342,108) 7,342,108
-------------
TOTAL INVESTMENTS -- 104.1%
(Cost $1,416,109,916) 1,533,208,015
Other Assets and Liabilities (net) -- (4.1%) (60,708,760)
-------------
TOTAL NET ASSETS -- 100.0% $1,472,499,255
=============
</Table>
<Table>
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.
DCB - Debt Conversion Bond
EMTN - Euromarket Medium Term Note
FLIRB - Front Loaded Interest Reduction Bond
IAB - Interest Arrears Bond
MBIA - Insured as to the payment of principal and interest by
MBIA Insurance Corp
MYDFA - Multi-Year Deposit Facility Agreement
PDI - Past Due Interest
PIK - Payment In Kind
Variable and step up rates - The rates shown on variable and
step up rate notes are the current interest rates at August
31, 2003, which are subject to change based on the terms of
the security, including varying reset dates.
</Table>
14 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
CURRENCY ABBREVIATIONS:
</Table>
<Table>
ARS - Argentine Peso
CHF - Swiss Franc
DEM - German Mark
EUR - Euro
FRF - French Franc
GBP - British Pound
HKD - Hong Kong Dollar
ITL - Italian Lira
JPY - Japanese Yen
KRW - South Korean Won
MYR - Malaysian Ringgit
NLG - Netherlands Guilder
USD - United States Dollar
</Table>
* Non-performing. Borrower not currently paying interest.
** Non-income producing security.
(a) Security is in default.
(b) Security valued at fair value using methods determined in good faith by
or at the direction of the Trustees (Note 1).
(c) All or a portion of this security has been segregated to cover
collateral requirements on reverse repurchase agreements (Note 6).
(d) All or a portion of this security has been segregated to cover margin
requirements on open financial futures contracts (Note 6).
See accompanying notes to the financial statements. 15
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $1,416,109,916) (Note 1) $1,533,208,015
Foreign currency, at value (cost $9,493) (Note 1) 9,138
Receivable for investments sold 16,025,080
Receivable for Fund shares sold 10,493,000
Interest receivable 23,462,160
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 194,374
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 89,873
Net receivable for open swap contracts (Notes 1 and 6) 37,377,747
Receivable for closed forward foreign currency contracts
(Notes 1) 6,361,132
Receivable for reverse repurchase agreements (Note 1 and
6) 11,182,500
--------------
Total assets 1,638,403,019
--------------
LIABILITIES:
Payable for investments purchased 6,346,915
Written options outstanding, at value (premiums $695,000)
(Notes 1 and 6) 592,265
Payable to affiliate for (Note 2):
Management fee 419,531
Shareholder service fee 155,884
Payable for open forward foreign currency contracts
(Notes 1 and 6) 3,132,515
Payable for closed reverse repurchase agreements
(Notes 1 and 6) 18,437,500
Payable for reverse repurchase agreements (Notes 1 and 6) 136,548,817
Accrued expenses 270,337
--------------
Total liabilities 165,903,764
--------------
NET ASSETS $1,472,499,255
==============
NET ASSETS CONSIST OF:
Paid-in capital $1,228,129,374
Accumulated undistributed net investment income 46,909,404
Accumulated net realized gain 46,480,908
Net unrealized appreciation 150,979,569
--------------
$1,472,499,255
==============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 882,014,389
==============
Class IV shares $ 590,484,866
==============
SHARES OUTSTANDING:
Class III 82,303,167
==============
Class IV 55,075,319
==============
NET ASSET VALUE PER SHARE:
Class III $ 10.72
==============
Class IV $ 10.72
==============
</Table>
16 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest $ 88,466,770
Dividends 127,211
------------
Total income 88,593,981
------------
EXPENSES:
Management fee (Note 2) 2,599,012
Interest expense (Notes 1 and 6) 879,310
Custodian fees 432,704
Audit fees 54,280
Legal fees 49,312
Trustees fees and related expenses (Note 2) 17,197
Registration fees 3,312
Miscellaneous 12,787
------------
4,047,914
Shareholder service fee (Note 2) - Class III 649,946
Shareholder service fee (Note 2) - Class IV 309,277
------------
959,223
------------
Net expenses 5,007,137
------------
Net investment income 83,586,844
------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 62,059,546
Closed futures contracts 439,006
Closed swap contracts (4,353,534)
Foreign currency, forward contracts and foreign
currency related transactions 11,144
------------
Net realized gain 58,156,162
------------
Change in net unrealized appreciation (depreciation) on:
Investments 77,191,026
Open futures contracts (19,323)
Open swap contracts 19,864,844
Written options 102,735
Foreign currency, forward contracts and foreign
currency related transactions 1,176,095
------------
Net unrealized gain 98,315,377
------------
Net realized and unrealized gain 156,471,539
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $240,058,383
============
</Table>
See accompanying notes to the financial statements. 17
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 83,586,844 $ 118,639,947
Net realized gain 58,156,162 55,641,785
Change in net unrealized appreciation (depreciation) 98,315,377 16,516,738
-------------- --------------
Net increase in net assets from operations 240,058,383 190,798,470
-------------- --------------
Distributions to shareholders from:
Net investment income
Class III (11,171,845) (69,910,377)
Class IV (7,482,349) (55,714,018)
-------------- --------------
Total distributions from net investment income (18,654,194) (125,624,395)
-------------- --------------
Net realized gains
Class III (26,094,237) (12,966,279)
Class IV (17,476,630) (10,131,853)
-------------- --------------
Total distributions from net realized gains (43,570,867) (23,098,132)
-------------- --------------
(62,225,061) (148,722,527)
-------------- --------------
Net share transactions (Note 5):
Class III (40,178,869) 229,203,802
Class IV (103,409,219) 106,900,799
-------------- --------------
Increase (decrease) in net assets resulting from net
share transactions (143,588,088) 336,104,601
-------------- --------------
Total increase in net assets 34,245,234 378,180,544
NET ASSETS:
Beginning of period 1,438,254,021 1,060,073,477
-------------- --------------
End of period (including accumulated undistributed
net investment income of $46,909,404 and
distributions in excess of net investment income of
$18,023,246, respectively) $1,472,499,255 $1,438,254,021
============== ==============
</Table>
18 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED AUGUST 31, 2003
- --------------------------------------------------------------------------------
<Table>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment income $ 83,586,844
Net accretion (41,837,281)
--------------
41,749,563
--------------
Investments purchased (1,081,492,649)
Investments sold 1,106,097,924
Short Term investments, net 62,155,073
--------------
86,760,348
--------------
CHANGES IN ASSETS AND LIABILITIES:
Net foreign currency transactions 12,944,669
(Increase) decrease in interest receivable (3,576,781)
(Increase) decrease in receivable for fund shares sold 33,825,888
(Increase) decrease in receivable for securities sold (6,316,273)
(Increase) decrease in variation margin on open futures
contracts (90,231)
(Increase) decrease in closed forward foreign currency
contracts (6,361,132)
Increase (decrease) in payable for Fund shares
repurchased (265,551)
Increase (decrease) in payable for securities purchased (36,436,849)
Increase (decrease) in premiums received on written
options 695,000
Increase (decrease) in payable to affiliate for:
Management fee 55,495
Shareholder service fee 22,819
Increase (decrease) in accrued expenses (8,343)
Net realized and unrealized gain on futures contracts 419,683
Net realized and unrealized gain on swap contracts (4,353,534)
Net realized and unrealized gain on forward contracts and
foreign currency related transactions 11,144
--------------
NET CASH USED FOR OPERATING ACTIVITIES 119,075,915
--------------
CASH FLOWS FROM FINANCING ACTIVITIES*
Proceeds from shares sold 176,097,692
Shares redeemed (378,573,975)
Cash Distributions paid (3,342,319)
Increase (decrease) in net payable for reverse repurchase
agreements 61,046,413
Increase (decrease) in payable for closed reverse
repurchase agreements 18,437,500
--------------
NET CASH PROVIDED (USED IN) FINANCING ACTIVITIES (126,334,689)
--------------
NET DECREASE IN CASH (7,258,774)
Cash and cash equivalents, beginning of period 7,258,774
--------------
Cash and cash equivalents, end of period $ --
==============
*SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Reinvestment of dividends and distributions $ 58,882,742
</Table>
See accompanying notes to the financial statements. 19
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001(B) 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.51 $ 9.30 $ 8.96 $ 8.74 $ 6.89 $ 11.64
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.59+ 0.94+ 1.01+ 1.13+ 0.84+ 0.92+
Net realized and unrealized gain
(loss) 1.09 0.45 0.52 0.41 2.20 (4.41)
-------- -------- -------- -------- -------- --------
Total from investment operations 1.68 1.39 1.53 1.54 3.04 (3.49)
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.14) (0.99) (1.19) (1.32) (1.07) (0.23)
From net realized gains (0.33) (0.19) -- -- (0.12) (1.03)
-------- -------- -------- -------- -------- --------
Total distributions (0.47) (1.18) (1.19) (1.32) (1.19) (1.26)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.72 $ 9.51 $ 9.30 $ 8.96 $ 8.74 $ 6.89
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) 17.68%** 15.94% 18.53% 18.78% 46.81% (32.94)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $882,014 $822,080 $570,459 $430,003 $378,593 $450,336
Net operating expenses to average
daily net assets 0.58%*(f) 0.57%(f) 0.57%(f) 0.56% 0.56% 0.56%
Interest expense to average daily
net assets 0.12%*(d) 0.08%(d) 0.14%(d) -- -- --
Total net expenses to average daily
net assets 0.70%*(f) 0.65% 0.71% 0.56% 0.56% 0.56%
Net investment income to average
daily net assets 11.23%* 10.21% 11.17% 12.57% 10.82% 10.99%
Portfolio turnover rate 69%** 121% 130% 139% 123% 272%
Fees and expenses reimbursed by the
Manager to average daily net
assets: --(g) 0.01%(g) 0.02% 0.03% 0.03% 0.18%
Purchase and redemption fees
consisted of the following per
share amounts:(c) $ 0.01 $ 0.01 --(e) $ 0.01 N/A N/A
</Table>
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
(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.
(b) 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 for
the year ended February 28, 2001 was to decrease net investment income
per share by $0.04, increase net realized and unrealized gains and
losses per share by $0.04 and decrease the ratio of net investment
income to average net assets from 13.06% to 12.57%. Per share data and
ratios/supplemental data for periods prior to March 1, 2000 have not
been restated to reflect this change.
(c) Effective March 1, 2000, the Fund adopted the provisions of the revised
AICPA Audit and Accounting Guide for Investment Companies which requires
the disclosure of the per share effect of purchase and redemption fees.
Periods prior to March 1, 2000 have not been restated to reflect this
change. Amounts calculated using average shares outstanding throughout
the period.
(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 and redemption fees were less than $0.01 per share.
(f) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 2.
(g) Effective June 30, 2002, the Fund ceased reimbursing any Fund fees or
expenses. See Note 2.
20 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001(B) 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.52 $ 9.29 $ 8.95 $ 8.74 $ 6.90 $ 11.63
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.59+ 0.95+ 1.01+ 1.14+ 0.84+ 0.91+
Net realized and unrealized gain
(loss) 1.08 0.46 0.52 0.40 2.20 (4.37)
-------- -------- -------- -------- -------- --------
Total from investment operations 1.67 1.41 1.53 1.54 3.04 (3.46)
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.14) (0.99) (1.19) (1.33) (1.08) (0.24)
From net realized gains (0.33) (0.19) -- -- (0.12) (1.03)
-------- -------- -------- -------- -------- --------
Total distributions (0.47) (1.18) (1.19) (1.33) (1.20) (1.27)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.72 $ 9.52 $ 9.29 $ 8.95 $ 8.74 $ 6.90
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) 17.56%** 16.25% 18.60% 18.71% 47.00% (32.82)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $590,485 $616,174 $489,615 $579,912 $545,869 $323,285
Net operating expenses to average
daily net assets 0.52%*(f) 0.52%(f) 0.52%(f) 0.51% 0.51% 0.51%
Interest expense to average daily
net assets 0.12%*(d) 0.08%(d) 0.14%(d) -- -- --
Total net expenses to average daily
net assets 0.64%*(f) 0.60% 0.66% 0.51% 0.51% 0.51%
Net investment income to average
daily net assets 11.30%* 10.32% 11.22% 12.62% 10.87% 10.87%
Portfolio turnover rate 69%** 121% 130% 139% 123% 272%
Fees and expenses reimbursed by the
Manager to average daily net
assets: --(g) 0.01%(g) 0.02% 0.03% 0.03% 0.18%
Purchase and redemption fees
consisted of the following per
share amounts:(c) $ 0.01 $ 0.01 --(e) $ 0.01 N/A N/A
</Table>
+ Computed using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
(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.
(b) 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 for
the year ended February 28, 2001 was to decrease net investment income
per share by $0.04, increase net realized and unrealized gains and
losses per share by $0.04 and decrease the ratio of net investment
income to average net assets from 13.11% to 12.62%. Per share data and
ratios/supplemental data for periods prior to March 1, 2000
(c) Effective March 1, 2000, the Fund adopted the provisions of the revised
AICPA Audit and Accounting effect of purchase and redemption fees.
Periods prior to March 1, 2000 have not average shares outstanding
throughout the period.
(d) Interest expense incurred as a result of entering into reverse
repurchase agreements is included in the Fund's net expenses.
(e) Purchase and redemption fees were less than $0.01 per share.
(f) Net expenses exclude expenses incurred indirectly through invesment in
underlying funds. See Note 2.
(g) Effective June 30, 2002, the Fund ceased reimbursing any Fund fees or
expenses. See Note 2.
See accompanying notes to the financial statements. 21
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Emerging Country Debt Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund seeks to earn high total return through direct and indirect
investment in sovereign debt of developing countries in Asia, Latin
America, the Middle East, Africa and Europe. The Fund's benchmark is the
J.P. Morgan Emerging Markets Bond Index Global (EMBIG).
Throughout the six months ended August 31, 2003, the Fund had two classes
of shares outstanding: Class III and Class IV. The principal economic
difference between the classes of shares is the level of shareholder
service fees borne by the classes. Eligibility for and automatic
conversion between the various classes of shares is generally based on the
total amount of assets invested in a particular fund or with GMO, as more
fully outlined in the Trust's prospectus.
At August 31, 2003, 2.4% of the Fund was invested in GMO Short-Duration
Collateral Fund and 0.6% of the Fund was invested in GMO Alpha LIBOR Fund,
each a separate fund of GMO Trust managed by GMO. Shares of GMO Alpha
LIBOR Fund and GMO Short-Duration Collateral Fund are not publicly
available for direct purchase. The financial statements of GMO Alpha LIBOR
Fund and GMO Short-Duration Collateral Fund should be read in conjunction
with the Fund's financial statements.
In November 2002, certain bonds ("NPF bonds") held by GMO Alpha LIBOR Fund
("Alpha LIBOR Fund"), in which the Fund had significant investments,
defaulted amid allegations of fraud and significant violations of the
bonds' indentures. Currently, no market exists for the NPF bonds, and they
are being valued at fair value by the trustees of GMO Trust or persons
acting at their direction. The devaluation of the NPF bonds had a negative
impact on the Fund's net asset value per share.
In late November 2002, Alpha LIBOR Fund undertook a reorganization
transaction with a new series of GMO Trust, GMO Short-Duration Collateral
Fund ("SDCF") and approximately 78% of the Fund's interest in Alpha LIBOR
Fund was transferred to SDCF in exchange for SDCF shares. The
reorganization was treated as a sale of the Alpha LIBOR Fund shares for
financial reporting purposes and a distribution by Alpha LIBOR Fund for
tax purposes. Accordingly, for financial reporting purposes, the Fund
recognized a loss on the sale of the Alpha LIBOR shares of
22
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
approximately $2,638,586. In addition, the Fund recognized for tax, but
not for financial reporting purposes, ordinary income of $1,355,616 and
long-term capital gains of $241,787 from Alpha LIBOR Fund. $4,235,989 was
added to the tax cost basis of the Fund's holdings of Alpha LIBOR Fund.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of other funds of the Trust ("underlying funds") and other mutual
funds are valued at their net asset value as reported on each business
day. 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.
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, or underlying Funds in which it
invests, were valued on the basis of a price provided by a principal
market maker. The prices provided by the principal market
23
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 August 31, 2003, the total value of the securities
represented 45% of net assets.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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 6 and represents the currency
exposure the Fund has acquired or hedged through forward currency
contracts as of August 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.
24
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for all
open futures contracts as of August 31, 2003.
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. See Note 6 for all open written
option contracts as of August 31, 2003.
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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. See the Schedule of Investments for all open
purchased option contracts as of August 31, 2003.
25
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 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.
26
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. The Fund also may enter into structured
warrants, which are derivatives like swaps and have risks similar to
swaps. 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 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 6 for a summary of open swap agreements as of August 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 or enters
into insolvency proceedings and the value of the collateral declines,
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
27
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
same assets at a later date at a fixed price. In connection with these
agreements, the Fund establishes segregated accounts with its custodian in
which the Fund maintains cash, U.S. Government securities or other liquid
high grade debt obligations in the name of the counterparty equal in value
to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the
securities the Fund has sold may decline below the price at which it is
obligated to repurchase them under the agreement. The market value of the
securities the Fund has sold is determined daily and any additional
required collateral is allocated to or sent by the fund on the next
business day. At August 31, 2003, the Fund had entered into reverse
repurchase agreements having a market value of $154,986,317,
collateralized by securities with a market value of $144,308,200. See
Note 6 for a summary of open reverse repurchase agreements as of
August 31, 2003.
DELAYED DELIVERY COMMITMENTS
The Fund may purchase or sell securities on a when-issued or forward
commitment basis. Payment and delivery may take place a month or more
after the date of the transaction. The price of the underlying securities
and the date when the securities will be delivered and paid for are fixed
at the time the transaction is negotiated. Collateral consisting of liquid
securities or cash and cash equivalents is maintained with the custodian
in an amount at least equal to these commitments.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 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 interest and 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
28
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
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 the accrual basis, and is adjusted for the amortization of
premium and discounts. Income is not recognized, nor are premium and
discount amortized on securities for which collection is not expected.
Dividend income, net of applicable withholding taxes, is recorded on the
ex-dividend date or non-cash dividends, if any, are recorded at the fair
market value of the securities received. Interest income on inflation
indexed securities is accrued daily based upon an inflation adjusted
principal. Additionally, any increase in the principal or face amount of
these securities is recorded as interest income. In determining the net
gain or loss on securities sold, the cost of securities is determined on
the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. Investment
income, common expenses and realized and unrealized gains and losses are
allocated pro-rata among the classes of shares of the Fund based on the
relative net assets of each class. Shareholder service fees, which are
directly attributable to a class of shares, are charged to that class'
operations.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .50% of the amount
invested. In the case of cash redemptions, the fee is .25% of the amount
redeemed. If the Manager determines that any portion of a cash purchase is
offset by a corresponding cash redemption occurring on the same day, the
purchase premium or redemption fee charged by the Fund will be reduced by
100% with respect to that portion. In addition, the purchase premium or
redemption fee charged by the Fund may be waived if the Manager determines
the Fund is substantially underweighted/overweighted in cash so that a
purchase or redemption will not require a securities transaction. All
purchase premiums and redemption fees are paid to and recorded by the Fund
as paid-in-capital. For the six months ended August 31, 2003 and the year
ended February 28, 2003, the Fund received $494,447 and $1,199,731 in
purchase premiums and $745,106 and $85,527 in redemption fees,
respectively. There is no premium for reinvested distributions.
29
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT RISK
Investments in emerging country debt present certain risks that are not
inherent in many other securities. Many emerging countries present
elements of political and/or economic instability, which may result in the
Fund's inability to collect on a timely basis, or in full, principal and
interest payments. Further, countries may impose various types of foreign
currency regulations or controls which may impede the Fund's ability to
repatriate amounts it receives. The Fund may acquire interests in
securities or bank loans which are in default at the time of acquisition
in anticipation of improving conditions in the related countries. These
factors may result in significant volatility in the values of its
holdings. The markets for emerging country debt are relatively illiquid.
Accordingly, the Fund may not be able to realize in an actual sale amounts
approximating those used to value its holdings.
GMO Emerging Country Debt Fund owns loans and bonds representing
significant exposure to the risk of default in many countries, but has the
most sizable of such positions relating to Russia and Brazil. The Fund's
financial position would be substantially adversely affected in the case
of a default by either of these countries on obligations held by the Fund,
or on obligations issued by those countries generally. The Fund has
purchased default protection in the form of credit default swap agreements
with respect to both countries, which may offset some of the losses that
the Fund might experience in the case of a default on bonds issued by such
countries. However, it is important to note that (i) such protection would
not cover losses due to defaults on loan assignments or participations,
(ii) such protection will generally not be sufficient to cover all of the
Fund's losses in the case of default, and (iii) due to the privately
negotiated nature of such instruments, under some circumstances, the
protection offered by such instruments may not be realized, even if the
Fund incurs substantial losses due to weakening of the credit or virtual
default by the countries.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .35% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .15%
for Class III shares and .10% for Class IV shares.
Effective June 30, 2002, the Manager no longer reimburses any Fund fees or
expenses. Prior to June 30, 2002, GMO had an agreement to reimburse the
Fund to the extent that the Fund's total annual operating expenses
(excluding shareholder service fees, custody fees, fees and expenses of
the independent Trustees of the Trust (including legal fees), brokerage
commissions and other investment-related costs, hedging transaction fees,
extraordinary, non-recurring and certain other unusual expenses (including
taxes), securities lending fees and expenses, interest expense and
transfer taxes) exceeded the management fee.
30
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund incurs fees and expenses indirectly as a shareholder in Alpha
LIBOR Fund and SDCF. For the six months ended August 31, 2003, indirect
operating expenses (excluding investment-related expenses) were less than
.001% (annualized) of the Fund's average daily net assets, and indirect
investment-related expenses (including, but not limited to, interest
expense, foreign audit expense, and investment-related legal expense) were
less than .001% (annualized) of the Fund's average daily net assets.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003, was $12,873. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $1,081,492,649 and $1,106,097,924, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$1,429,202,153 $196,809,164 $(92,803,302) $104,005,862
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 28.0% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's shares
outstanding. Investment activities of these shareholders may have a
material effect on the Fund.
31
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
-------------------------- --------------------------
Shares Amount Shares Amount
Class III: ----------- ------------- ----------- -------------
Shares sold 14,473,528 $ 152,043,073 29,282,626 $ 269,640,084
Shares issued to shareholders in reinvestment
of distributions 3,213,074 34,090,714 7,513,503 67,172,341
Shares repurchased (21,786,405) (226,312,656) (11,754,805) (107,608,623)
----------- ------------- ----------- -------------
Net increase (decrease) (4,099,803) $ (40,178,869) 25,041,324 $ 229,203,802
=========== ============= =========== =============
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
-------------------------- --------------------------
Shares Amount Shares Amount
Class IV: ----------- ------------- ----------- -------------
Shares sold 2,316,094 $ 24,025,387 9,603,263 $ 86,925,003
Shares issued to shareholders in reinvestment
of distributions 2,336,666 24,792,028 7,164,059 64,094,884
Shares repurchased (14,323,931) (152,226,634) (4,705,391) (44,119,088)
----------- ------------- ----------- -------------
Net increase (decrease) (9,671,171) $(103,409,219) 12,061,931 $ 106,900,799
=========== ============= =========== =============
</Table>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- --------------- ------------ --------------
Buys
9/09/03 KRW 8,699,999,996 $ 7,379,229 $ 141,895
</Table>
32
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- --------------- ------------ --------------
9/25/03 KRW 16,198,000,000 $ 13,719,387 $ (21,123)
8/16/04 MYR 68,580,000 18,000,000 0
-----------
$ 120,772
===========
Sales
9/11/03 CHF 2,800,000 $ 1,999,660 $ 52,479
11/13/03 EUR 98,700,000 108,140,319 (968,898)
9/25/03 JPY 6,770,000,000 58,064,786 (1,155,379)
3/17/04 KRW 16,471,000,000 13,786,104 (786,104)
9/09/03 KRW 8,700,000,000 7,379,229 (201,011)
-----------
$(3,058,913)
===========
</Table>
FUTURES CONTRACTS
<Table>
<Caption>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- ----------------------------------- ------------------ ------------- --------------
Sales
6 Japanese Government Bond 10 Yr. September 2003 $ 7,065,478 $ 362,140
476 U.S. Treasury Note 10 Yr. December 2003 52,226,125 (415,518)
---------
$ (53,378)
=========
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
33
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
WRITTEN OPTION TRANSACTIONS
<Table>
<Caption>
Puts Calls
------------------------------ ----------------------------
Principal Amount Principal Amount
of Contracts of Contracts
(000's omitted) Premiums (000's omitted) Premiums
---------------- ------------ ---------------- ----------
Outstanding, beginning of period $ -- $ --
Options written 10,000 695,000 -- --
------- -------- ------- ----------
Outstanding, end of period 10,000 $695,000 -- $ --
======= ======== ======= ==========
</Table>
SUMMARY OF WRITTEN OPTIONS OUTSTANDING
<Table>
<Caption>
Principal Amount
of Contracts Expiration
(000's omitted) Exercise Price Date Value
---------------- -------------- ---------- --------
Pemex Master Trust, 9.5%, due 9/15/27 10,000 USD 100.0 USD 3/15/06 $592,265
--------
$592,265
========
</Table>
34
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
REVERSE REPURCHASE AGREEMENTS
<Table>
<Caption>
Face Value Description Market Value
-------------- ------------------------------------------------------- ------------
Lehman Brothers, 1.05%, dated 4/11/03, to be
repurchased on demand at face value plus accrued
USD 14,007,000 interest. $ 14,007,000
Lehman Brothers, 0.95%, dated 5/13/03, to be
repurchased on demand at face value plus accrued
USD 23,445,000 interest. 23,445,000
Lehman Brothers, 1.20%, dated 5/30/03, to be
repurchased on demand at face value plus accrued
USD 38,325,000 interest. 38,325,000
Deutsche Bank, 0.95%, dated 6/30/03, to be repurchased
USD 3,266,188 on demand at face value plus accrued interest. 3,266,188
JP Morgan Chase & Co., 0.45%, dated 6/30/03, to be
repurchased on demand at face value plus accrued
USD 1,314,400 interest. 1,314,400
JP Morgan Chase & Co., 0.90%, dated 6/30/03, to be
repurchased on demand at face value plus accrued
USD 6,596,818 interest. 6,596,818
Lehman Brothers, 0.13%, dated 7/08/03, to be
repurchased on demand at face value plus accrued
USD 3,286,000 interest. 3,286,000
Lehman Brothers, 0.75%, dated 7/08/03, to be
repurchased on demand at face value plus accrued
USD 6,033,500 interest. 6,033,500
JP Morgan Chase & Co., 0.95%, dated 7/23/03, to be
repurchased on demand at face value plus accrued
USD 15,453,084 interest. 15,453,084
UBS AG, 0.90%, dated 7/25/03, to be repurchased on
USD 6,117,050 demand at face value plus accrued interest. 6,117,050
UBS AG, 0.80%, dated 8/21/03, to be repurchased on
USD 1,776,930 demand at face value plus accrued interest. 1,776,930
Deutsche Bank, 1.10%, dated 8/29/03, to be repurchased
USD 5,745,347 on demand at face value plus accrued interest. 5,745,347
Lehman Brothers, 0.85%, dated 9/02/03, to be
repurchased on demand at face value plus accrued
USD 11,182,500 interest. 11,182,500
------------
$136,548,817
============
Average balance outstanding $226,953,397
Average interest rate 0.94%
Maximum balance outstanding $351,725,308
Average shares outstanding 141,112,529
Average balance per share outstanding 1.61
</Table>
35
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
CREDIT DEFAULT SWAPS
5,000,000 USD 10/15/03 Agreement with Deutsche Bank AG dated 1/21/03 to $ (264,420)
pay 11.20% per year times the notional amount. The
fund receives payment only upon a default event in
Brazil.
5,000,000 USD 10/16/03 Agreement with Deutsche Bank AG dated 10/11/00 to (28,925)
pay 2.83% per year times the notional amount. The
fund receives payment only upon a default event in
the Philippines.
40,000,000 USD 12/19/03 Agreement with Deutsche Bank AG dated 4/16/03 to (570,245)
pay 5.25% per year times the notional amount. The
fund receives payment only upon a default event on
the Gazprom Loan Facility.
5,000,000 USD 4/13/04 Agreement with Goldman Sachs International dated (304,571)
4/04/01 to pay 11.50% per year times the notional
amount. The fund receives payment only upon a
default event in Turkey.
8,000,000 USD 4/15/04 Agreement with Morgan Guaranty Trust Company dated (321,685)
3/13/02 to pay 5.75% per year times the notional
amount. The fund receives payment only upon a
default event in Brazil.
5,000,000 USD 4/15/04 Agreement with Bank of America N.A. dated 11/28/01 (307,684)
to pay 7.95% per year times the notional amount.
The fund receives payment only upon a default
event in Brazil.
2,000,000 USD 4/23/05 Agreement with Deutsche Bank AG dated 4/22/03 to (79,813)
pay 6.25% per year times the notional amount. The
fund receives payment only upon a default event in
Lebanon.
</Table>
36
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
5,000,000 USD 6/18/05 Agreement with Deutsche Bank AG dated 6/18/02 to $ (37,959)
pay 2.35% per year times the notional amount. The
fund receives payment only upon a default event in
the Philippines.
5,000,000 USD 7/15/05 Agreement with Banque Paribas dated 10/18/02 to (213,867)
pay 10.0% per year times the notional amount. The
fund receives payment only upon a default event on
the Banco Latinoamericano de Exportaciones SA Euro
Medium Term Notes, 7.71%, due 9/22/05.
7,000,000 USD 8/05/05 Agreement with Deutsche Bank AG dated 7/31/02 to (151,511)
pay 3.35% per year times the notional amount. The
fund receives payment only upon a default event in
the Philippines.
10,000,000 USD 11/06/05 Agreement with JP Morgan Chase Bank dated 11/05/02 (1,581,997)
to pay 9.30% per year times the notional amount.
The fund receives payment only upon a default
event in Colombia.
11,000,000 USD 3/22/06 Agreement with Bank of America, N.A. dated 8/12/03 (6,420)
to pay 1.45% per year times the notional amount.
The fund receives payment only upon a default
event on the Petroleos Mexicanos, 9.0% due
6/01/07.
15,000,000 USD 4/03/06 Agreement Morgan Guaranty Trust Company dated 10,470
3/29/01 to pay 0.25% per year times the notional
amount. The fund receives payment only upon a
default event on the Banco Santander Senior Bonds
or Loans.
15,000,000 USD 4/06/06 Agreement with Morgan Guaranty Trust Company dated (17,820)
04/03/01 to pay 0.26% per year times the notional
amount. The fund receives payment only upon a
default event on the Banco Santander Senior Bonds
or Loans.
</Table>
37
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
30,000,000 USD 4/10/06 Agreement with Morgan Guaranty Trust Company dated $ (46,453)
4/05/01 to pay 0.275% per year times the notional
amount. The fund receives payment only upon a
default event on the Banco Santander Senior Bonds
or Loans.
10,000,000 USD 4/10/06 Agreement with Morgan Guaranty Trust Company dated (11,760)
4/04/01 to pay 0.26% per year times the notional
amount. The fund receives payment only upon a
default event on the Banco Santander Senior Bonds
or Loans.
25,000,000 USD 4/30/06 Agreement with Morgan Guaranty Trust Company dated (93,720)
4/25/01 to pay 0.27% per year times the notional
amount. The fund receives payment only upon a
default event on the Banco Bilbao Vizcaya Senior
Bonds or Loans.
20,000,000 USD 8/09/06 Agreement with JP Morgan Chase Bank dated 8/06/02 (161,637)
to pay 0.42% per year times the notional amount.
The fund receives payment only upon a default
event on the Banco Bilbao Vizcaya Argentaria SA,
5.0% due 6/24/08.
10,000,000 USD 2/18/07 Agreement with Morgan Guaranty Trust Company dated (819,765)
2/13/02 to pay 4.6% per year times the notional
amount. The fund receives payment only upon a
default event in Russia.
10,000,000 USD 2/26/07 Agreement with Salomon Brothers International (323,059)
Limited dated 2/21/02 to pay 2.15% per year times
the notional amount. The fund receives payment
only upon a default event in the South Africa.
</Table>
38
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
10,000,000 USD 6/27/07 Agreement with JP Morgan Chase Bank dated 06/24/02 $ (69,006)
to pay 0.330% per quarter times the notional
amount. The fund receives payment only upon a
default event on the Banco Bilbao Vizcaya of
Spain.
10,000,000 USD 7/02/07 Agreement with Citibank N.A. dated 6/27/02 to pay (98,673)
0.64% per year times the notional amount. The fund
receives payment only upon a default event on the
Bank of China bonds or loans.
3,000,000 USD 7/02/07 Agreement with Deutsche Bank AG dated 6/27/02 to (30,038)
pay 0.64% per year times the notional amount. The
fund receives payment only upon a default event in
China.
15,000,000 USD 9/27/07 Agreement with JP Morgan Chase Bank dated 9/26/02 (92,920)
to pay 0.33% per year times the notional amount.
The fund receives payment only upon a default
event on the HSBC Bank Plc, 3 month LIBOR + .05%,
due 4/12/06.
10,000,000 USD 10/10/07 Agreement with JP Morgan Chase Bank dated 10/09/02 (210,598)
to pay 0.7% per year times the notional amount.
The fund receives payment only upon a default
event on the Banco Bilbao Vizcaya Argentaria SA,
5.0% due 6/24/08.
8,000,000 USD 10/19/07 Agreement with Deutsche Bank AG dated 10/18/02 to (1,856,874)
pay 15.0% per year times the notional amount. The
fund receives payment only upon a default event in
Venezuala.
5,000,000 USD 10/22/07 Agreement with JP Morgan Chase Bank dated 10/21/02 (74,934)
to pay 0.54% per year times the notional amount.
The fund receives payment only upon a default
event on the Banco Bilbao Vizcaya Argentaria SA,
5.0% due 6/24/08.
</Table>
39
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
5,000,000 USD 10/23/07 Agreement with JP Morgan Chase Bank dated 10/22/02 $ (63,686)
to pay 0.48% per year times the notional amount.
The fund receives payment only upon a default
event on the Banco Bilbao Vizcaya Argentaria SA,
5.0% due 6/24/08.
5,000,000 USD 10/30/07 Agreement with Deutsche Bank AG dated 10/29/02 to (56,015)
pay 0.440% per year times the notional amount. The
fund receives payment only upon a default event on
the Banco Bilbao Vizcaya Argentaria SA, 5.0% due
6/24/08.
10,000,000 USD 11/25/07 Agreement with Deutsche Bank AG dated 11/22/02 to (302,738)
pay 1.15% per year times the notional amount. The
fund receives payment only upon a default event on
the Endesa SA of Spain, 4.375% due 6/18/09.
15,000,000 USD 11/27/07 Agreement with JP Morgan Chase Bank dated 11/26/02 (425,896)
to pay 1.1% per year times the notional amount.
The fund receives payment only upon a default
event on the Endesa SA of Spain, 5.25% due
2/22/06.
40,000,000 USD 12/20/04 Agreement with Deutsche Bank AG dated 4/16/03 to 681,786
receive 5.25% per year times the notional amount.
The fund makes payment only upon a default event
on the Gazprom Loan Facility.
15,000,000 USD 1/21/06 Agreement with Deutsche Bank AG dated 7/18/03 to 97,397
receive 5.4% per year times the notional amount.
The fund makes payment only upon a default event
on the Gazprom Loan Facility.
</Table>
40
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
15,000,000 USD 6/08/06 Agreement with Morgan Guaranty Trust Company dated $ 665,514
6/05/01 to receive 2.95% per year times the
notional amount. The fund makes payment only upon
a default event in Mexico.
35,000,000 USD 7/05/06 Agreement with Deutsche Bank AG dated 7/01/03 to (115,422)
receive 5.0% per year times the notional amount.
The fund makes payment only upon a default event
on the Gazprom Loan Facility.
15,000,000 USD 8/21/06 Agreement with Deutsche Bank AG dated 7/18/03 to (29,724)
receive 5.45% per year times the notional amount.
The fund makes payment only upon a default event
on the Gazprom Loan Facility.
5,000,000 USD 9/27/06 Agreement with Merrill Lynch International dated (103,193)
11/01/02 to receive 5.70% per year times the
notional amount. The fund makes payment only upon
a default event in the Dominican Republic.
5,000,000 USD 5/07/08 Agreement with JP Morgan Chase Bank dated 5/06/03 489,692
to receive 9.65% per year times the notional
amount. The fund makes payment only upon a default
event in Brazil.
5,000,000 USD 5/30/08 Agreement with JP Morgan Chase Bank dated 5/29/03 405,214
to receive 8.65% per year times the notional
amount. The fund makes payment only upon a default
event in Turkey.
5,000,000 USD 8/06/08 Agreement with Bear, Stearns International Limited 3,205
dated 8/05/03 to receive 1.10% per year times the
notional amount. The fund makes payment only upon
a default event in Trinidad and Tobago.
</Table>
41
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
2,000,000 USD 9/20/08 Agreement with UBS AG dated 6/26/03 to receive $ (4,913)
9.2% per year times the notional amount. The fund
makes payment only upon a default event in The
Dominican Republic.
10,000,000 USD 9/20/08 Agreement with Morgan Stanley Capital 210,011
Services, Inc., dated 7/09/03 to receive 5.15% per
year times the notional amount. The fund makes
payment only upon a default event in Columbia.
12,000,000 USD 3/05/10 Agreement with Deutsche Bank AG dated 3/04/03 to 1,544,223
receive 9.1% per year times the notional amount.
The fund makes payment only upon a default event
in Turkey.
3,000,000 USD 3/31/10 Agreement with JP Morgan Chase Bank dated 3/28/03 389,551
to receive 4.7% per year times the notional
amount. The fund makes payment only upon a default
event in Egypt.
5,000,000 USD 7/30/12 Agreement with JP Morgan Chase Bank dated 7/25/02 541,968
to receive 3.05% per year times the notional
amount. The fund makes payment only upon a default
event in Chile.
10,000,000 USD 8/12/12 Agreement with JP Morgan Chase Bank dated 8/07/02 1,442,950
to receive 4.42% per year times the notional
amount. The fund makes payment only upon a default
event in Mexico.
15,000,000 USD 9/19/12 Agreement with Bank of America N.A. dated 9/18/02 2,083,275
to receive 4.07% per year times the notional
amount. The fund makes payment only upon a default
event in Mexico.
10,000,000 USD 10/03/12 Agreement with JP Morgan Chase Bank dated 10/02/02 1,408,760
to receive 4.12% per year times the notional
amount. The fund makes payment only upon a default
event in Mexico.
</Table>
42
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
10,000,000 USD 10/04/12 Agreement with JP Morgan Chase Bank dated 10/03/02 $ 1,129,395
to receive 2.95% per year times the notional
amount. The fund makes payment only upon a default
event in Chile.
5,000,000 USD 11/05/12 Agreement with Deutsche Bank AG dated 11/04/02 to (294,651)
receive 6.50% per year times the notional amount.
The fund makes payment only upon a default event
in Jamaica.
10,000,000 USD 1/08/13 Agreement with Deutsche Bank AG dated 1/07/03 to 1,287,719
receive 7.15% per year times the notional amount.
The fund makes payment only upon a default event
in Colombia.
10,000,000 USD 1/09/13 Agreement with Deutsche Bank AG dated 1/08/03 to 585,229
receive 8.25% per year times the notional amount.
The fund makes payment only upon a default event
in Turkey.
7,000,000 USD 1/10/13 Agreement with JP Morgan Chase Bank dated 1/09/03 1,042,857
to receive 7.50% per year times the notional
amount. The fund makes payment only upon a default
event in Colombia.
10,000,000 USD 2/07/13 Agreement with JP Morgan Chase Bank dated 2/06/03 1,905,731
to receive 8.30% per year times the notional
amount. The fund makes payment only upon a default
event in Colombia.
15,000,000 USD 2/11/13 Agreement with JP Morgan Chase Bank dated 2/10/03 889,357
to receive 3.05% per year times the notional
amount. The fund makes payment only upon a default
event in Mexico.
10,000,000 USD 6/06/13 Agreement with Deutsche Bank AG dated 6/05/03 to 870,113
receive 9.4% per year times the notional amount.
The fund makes payment only upon a default event
in Brazil.
</Table>
43
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
5,000,000 USD 6/07/13 Agreement with Citibank N.A. dated 6/06/03 to $ 73,466
receive 3.15% per year times the notional amount.
The fund makes payment only upon a default event
in Russia.
10,000,000 USD 6/11/13 Agreement with Citibank N.A. dated 6/10/03 to 193,447
receive 3.22% per year times the notional amount.
The fund makes payment only upon a default event
in Russia.
20,000,000 USD 6/12/13 Agreement with Deutsche Bank AG dated 6/11/03 to 1,362,825
receive 9.08% per year times the notional amount.
The fund makes payment only upon a default event
in Brazil.
20,000,000 USD 6/13/13 Agreement with Deutsche Bank AG dated 6/12/03 to 415,995
receive 3.25% per year times the notional amount.
The fund makes payment only upon a default event
in Russia.
10,000,000 USD 6/24/13 Agreement with JP Morgan Chase Bank dated 6/23/03 244,685
to receive 3.32% per year times the notional
amount. The fund makes payment only upon a default
event in Russia.
5,000,000 USD 6/24/13 Agreement with JP Morgan Chase Bank dated 6/23/03 132,245
to receive 3.35% per year times the notional
amount. The fund makes payment only upon a default
event in Russia.
10,000,000 USD 9/20/13 Agreement with Deutsche Bank AG dated 6/23/03 to 268,985
receive 3.35% per year times the notional amount.
The fund makes payment only upon a default event
in Russia.
10,000,000 USD 10/05/17 Agreement with JP Morgan Chase Bank dated 10/04/02 1,764,802
to receive 4.20% per year times the notional
amount. The fund makes payment only upon a default
event in Mexico.
</Table>
44
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
INTEREST RATE SWAPS
1,000,000,000 HKD 8/07/04 Agreement with Morgan Guaranty Trust Company dated $(3,951,683)
8/03/01 to pay the notional amount multiplied by
4.75% and to receive the notional amount
multiplied by 3 month Floating Rate Hong Kong
HIBOR adjusted by a specified spread.
130,600,000 USD 8/07/04 Agreement with Morgan Guaranty Trust Company dated 4,209,213
8/03/01 to receive the notional amount multiplied
by 4.835% and to pay the notional amount
multiplied by the 3 month LIBOR adjusted by a
specified spread.
15,000,000 EUR 2/22/07 Agreement with UBS AG dated 2/18/00 to pay the (1,322,944)
notional amount multiplied by 5.76% and to receive
the notional amount multiplied by the 6 month
EURIBOR.
7,000,000,000 JPY 1/16/08 Agreement with UBS AG dated 1/14/03 to pay the 938,863
notional amount multiplied by 0.355% and to
receive the notional amount multiplied by the 6
month Japanese LIBOR adjusted by a specified
spread.
6,000,000,000 JPY 3/10/08 Agreement with Deutsche Bank AG dated 3/06/03 to 929,843
pay the notional amount multiplied by 0.285% and
to receive the notional amount multiplied by the 6
month Japanese LIBOR adjusted by a specified
spread.
6,000,000,000 JPY 3/26/08 Agreement with JP Morgan Chase Bank dated 3/24/03 1,109,564
to pay the notional amount multiplied by 0.27% and
to receive the notional amount multiplied by the 6
month Japanese LIBOR adjusted by a specified
spread.
</Table>
45
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
6,000,000,000 JPY 4/16/08 Agreement with Citibank N.A. dated 4/14/03 to pay $ 1,145,782
the notional amount multiplied by 0.27% and to
receive the notional amount multiplied by the 6
month Japanese LIBOR adjusted by a specified
spread.
6,000,000,000 JPY 5/09/08 Agreement with Citibank N.A. dated 5/07/03 to pay 777,955
the notional amount multiplied by 0.23% and to
receive the notional amount multiplied by the 6
month Japanese LIBOR adjusted by a specified
spread.
6,000,000,000 JPY 5/19/08 Agreement with Deutsche Bank AG dated 5/15/03 to 1,310,840
pay the notional amount multiplied by 0.225% and
to receive the notional amount multiplied by the 6
month Japanese LIBOR adjusted by a specified
spread.
6,000,000,000 JPY 5/29/08 Agreement with Deutsche Bank AG dated 5/27/03 to 736,034
pay the notional amount multiplied by 0.215% and
to receive the notional amount multiplied by the 6
month Japanese LIBOR adjusted by a specified
spread.
12,000,000,000 JPY 6/03/08 Agreement with Deutsche Bank AG dated 5/30/03 to 2,794,440
pay the notional amount multiplied by 0.2% and to
receive the notional amount multiplied by the 6
month Japanese LIBOR adjusted by a specified
spread.
6,000,000,000 JPY 6/11/08 Agreement with JP Morgan Chase Bank dated 6/09/03 1,431,003
to pay the notional amount multiplied by 0.1925%
and to receive the notional amount multiplied by
the 6 month Japanese LIBOR adjusted by a specified
spread.
</Table>
46
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
6,000,000,000 JPY 6/12/08 Agreement with Deutsche Bank AG dated 6/10/03 to $ 1,445,013
pay the notional amount multiplied by 0.1875% and
to receive the notional amount multiplied by the 6
month Japanese LIBOR adjusted by a specified
spread.
6,000,000,000 JPY 12/17/09 Agreement with Citibank N.A. dated 12/13/02 to pay 1,369,087
the notional amount multiplied by 0.5475% and to
receive the notional amount multiplied by the 6
month Japanese LIBOR adjusted by a specified
spread.
26,000,000 USD 3/31/10 Agreement with UBS AG dated 3/29/00 to receive the 4,596,909
notional amount multiplied by 7.406% and to pay
the notional amount multiplied by the 3 month
LIBOR adjusted by a specified spread.
35,000,000 USD 9/13/10 Agreement with Bear Stearns Bank Plc dated 9/08/00 5,426,974
to receive the notional amount multiplied by 7.01%
and to pay the notional amount multiplied by the 3
month LIBOR adjusted by a specified spread.
20,000,000 USD 1/24/11 Agreement with UBS AG dated 1/22/01 to receive the 2,002,420
notional amount multiplied by 6.12% and to pay the
notional amount multiplied by the 3 month LIBOR
adjusted by a specified spread.
30,000,000 USD 1/25/11 Agreement with Bear Stearns Bank Plc dated 1/23/01 3,178,681
to receive the notional amount multiplied by
6.201% and to pay the notional amount multiplied
by the 3 month LIBOR adjusted by a specified
spread.
</Table>
47
<Page>
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------------- ---------- -------------------------------------------------- --------------
50,000,000 USD 7/17/13 Agreement with JP Morgan Chase Bank dated 7/15/03 $(2,475,263)
to receive the notional amount multiplied by
4.3175% and to pay the notional amount multiplied
by the 3 month LIBOR adjusted by a specified
spread.
50,000,000 USD 7/23/13 Agreement with JP Morgan Chase Bank dated 7/21/03 (1,590,753)
to receive the notional amount multiplied by 4.54%
and to pay the notional amount multiplied by the 3
month LIBOR adjusted by a specified spread.
50,000,000 USD 8/04/18 Agreement with Deutsche Bank AG dated 7/31/03 to 347,494
receive the notional amount multiplied by 5.4475%
and to pay the notional amount multiplied by the 3
month LIBOR adjusted by a specified spread.
$37,377,747
===========
</Table>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
48
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
MUTUAL FUNDS -- 89.0%
UNITED STATES -- 89.0%
401,602 GMO Emerging Markets Fund, Class III 4,682,676
274,301 GMO International Growth Fund, Class III 5,302,239
501,974 GMO International Intrinsic Value Fund, Class III 9,893,901
165,727 GMO International Small Companies Fund, Class III 2,217,428
218,307 GMO Real Estate Fund, Class III 2,698,278
89,013 GMO Small Cap Value Fund, Class III 1,142,924
1,483,123 GMO U.S. Core Fund, Class III 17,456,352
------------
43,393,798
------------
TOTAL MUTUAL FUNDS (COST $38,730,406) 43,393,798
------------
COMMON STOCKS -- 0.0%
ITALY -- 0.0%
12,500 Grassetto SPA*(a)(b) 137
------------
TOTAL COMMON STOCKS (COST $7,041) 137
------------
SHORT-TERM INVESTMENTS -- 11.5%
CASH EQUIVALENTS -- 5.8%
$ 2,400,000 Bank of Montreal Time Deposit, 1.06%, due 9/02/03 2,400,000
$ 400,000 HSBC Bank USA, 1.00%, due 9/02/03 400,000
------------
2,800,000
------------
U.S. GOVERNMENT -- 5.7%
$ 2,785,000 U.S. Treasury Bill, 0.93%, due 10/23/03(c) 2,780,422
------------
TOTAL SHORT-TERM INVESTMENTS (COST $5,580,422) 5,580,422
------------
TOTAL INVESTMENTS -- 100.5%
(Cost $44,317,869) 48,974,357
Other Assets and Liabilities (net) -- (0.5%) (233,515)
------------
TOTAL NET ASSETS -- 100.0% $ 48,740,842
============
NOTES TO SCHEDULE OF INVESTMENTS:
</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) Bankrupt issuer.
(c) All or a portion of this security is held as collateral for open futures
contracts (Note 6).
See accompanying notes to the financial statements. 1
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $44,317,869) (Note 1) $48,974,357
Cash 55,625
Foreign currency, at value (cost $520) (Note 1) 525
Receivable for Fund shares sold 450,000
Interest receivable 18
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 384,156
Receivable for closed forward foreign currency contracts
(Note 1) 123,961
Receivable for expenses reimbursed by Manager (Note 2) 25,394
-----------
Total assets 50,014,036
-----------
LIABILITIES:
Payable for investments purchased 450,000
Payable to affiliate for (Note 2):
Management fee 19,859
Shareholder service fee 5,958
Payable for open forward foreign currency contracts
(Notes 1 and 6) 620,192
Payable for variation margin on open futures contracts
(Notes 1 and 6) 139,039
Accrued expenses 38,146
-----------
Total liabilities 1,273,194
-----------
NET ASSETS $48,740,842
===========
NET ASSETS CONSIST OF:
Paid-in capital $52,351,236
Accumulated undistributed net investment income 423,895
Accumulated net realized loss (7,612,056)
Net unrealized appreciation 3,577,767
-----------
$48,740,842
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $48,740,842
===========
SHARES OUTSTANDING:
Class III 5,012,191
===========
NET ASSET VALUE PER SHARE:
Class III $ 9.72
===========
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends from investment company shares $ 259,389
Interest 25,056
----------
Total income 284,445
----------
EXPENSES:
Management fee (Note 2) 87,898
Custodian fees 40,048
Audit fees 15,456
Transfer agent fees 14,904
Registration fees 2,300
Legal fees 552
Trustees fees and related expenses (Note 2) 412
Miscellaneous 276
Fees reimbursed by Manager (Note 2) (33,488)
----------
128,358
Indirectly incurred fees waived or borne by Manager (Note
2) (73,927)
----------
54,431
----------
Shareholder service fee (Note 2) - Class III 26,369
Shareholder service fee waived (Note 2) - Class III (23,509)
----------
2,860
----------
Net expenses 57,291
----------
Net investment income 227,154
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (16,451)
Realized gains distributions from investment company
shares 1,007
Closed futures contracts (3,461,687)
Foreign currency, forward contracts and foreign
currency related transactions (287,846)
----------
Net realized loss (3,764,977)
----------
Change in net unrealized appreciation (depreciation) on:
Investments 5,793,271
Open futures contracts (2,109,324)
Foreign currency, forward contracts and foreign
currency related transactions 255,475
----------
Net unrealized gain 3,939,422
----------
Net realized and unrealized gain 174,445
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 401,599
==========
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 227,154 $ 335,151
Net realized gain (loss) (3,764,977) 1,139,754
Change in net unrealized appreciation (depreciation) 3,939,422 (449,151)
----------- -----------
Net increase in net assets from operations 401,599 1,025,754
----------- -----------
Distributions to shareholders from:
Net investment income
Class III -- (525,883)
----------- -----------
Net share transactions (Note 5):
Class III 22,010,078 9,201,261
----------- -----------
Net increase in net assets resulting from Fund share
transactions 22,010,078 9,201,261
----------- -----------
Total increase in net assets 22,411,677 9,701,132
NET ASSETS:
Beginning of period 26,329,165 16,628,033
----------- -----------
End of period (including accumulated undistributed
net investment income of $423,895 and $196,741,
respectively) $48,740,842 $26,329,165
=========== ===========
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.63 $ 9.23 $ 8.73 $ 7.72 $ 7.59 $ 8.72
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income(d) 0.06(b) 0.20(b) 0.17(b) 0.15 0.16 0.17(b)
Net realized and unrealized gain
(loss) 0.03 0.49 0.96 1.68 0.20 (0.88)
------- ------- ------- ------- ------- -------
Total from investment operations 0.09 0.69 1.13 1.83 0.36 (0.71)
------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income -- (0.29) (0.63) (0.82) (0.23) (0.42)
------- ------- ------- ------- ------- -------
Total distributions -- (0.29) (0.63) (0.82) (0.23) (0.42)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.72 $ 9.63 $ 9.23 $ 8.73 $ 7.72 $ 7.59
======= ======= ======= ======= ======= =======
TOTAL RETURN(a) 0.93%** 7.61% 13.32% 24.84% 4.74% (8.13)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $48,741 $26,329 $16,628 $56,499 $46,718 $50,671
Net expenses to average daily net
assets(c) 0.33%* 0.64% 0.37% 0.25% 0.21% 0.17%
Net investment income to average
daily net assets(d) 1.29%* 2.06% 1.88% 1.80% 1.89% 1.99%
Portfolio turnover rate 0%**(e) 111% 22% 15% 13% 21%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.74%* 0.94% 0.78% 0.64% 0.54% 0.61%
Purchase and redemption fees
consisted of the following per
share amounts: $ 0.00(f) -- -- -- -- --
</Table>
* Annualized.
** Not Annualized.
(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.
(b) Computed using average shares outstanding throughout the period.
(c) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 2.
(d) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund
invests.
(e) Portfolio turnover rate was less than 1%.
(f) Purchase/redemption fees were less than $0.01 per share.
See accompanying notes to the financial statements. 5
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Global Hedged Equity Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks high total return consistent with
minimal exposure to general equity market risk. The Fund will pursue its
objective by investing in Class III shares of domestic equity,
international equity, and fixed income funds of the Trust. The Fund's
benchmark is the Citigroup (f/k/a Salomon Smith Barney) 3-Month Treasury
Bill Index. The financial statements of the underlying funds should be
read in conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of other funds of the Trust ("underlying funds") and other mutual
funds are valued at their net asset value as reported on each business
day. 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
6
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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 6 and represents the currency
exposure the Fund has acquired or hedged through currency contracts as of
August 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
7
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
tends to decrease the Fund's exposure to the underlying instrument or
hedge other Fund instruments. Upon entering into a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government and
agency obligations in accordance with the initial margin requirements of
the broker or exchange. 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 6 for
all open futures contracts as of August 31, 2003.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
8
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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 the price of the security or index underlying these
transactions. At August 31, 2003, there were no open swap agreements.
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,
9
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
if any, after giving effect to any available capital loss carryover for
U.S. federal income tax purposes. Therefore, no provision for U.S. federal
income or excise tax is necessary. Taxes on foreign interest and dividend
income 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
At February 28, 2003, the Fund had a capital loss carryforward of
$4,421,884. However, restrictions on annual utilization of this
carryforward under the Code resulting from significant shareholder
activity are expected to limit maximum utilization to offset future
capital gains prior to expiration to approximately $2,094,980 of which
$1,571,235 expires in 2006 and $523,745 expires in 2007. The Fund has
elected to defer to March 1, 2003 post-October capital losses of $285,408.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the
amortization of premiums and discounts. Non cash dividends, if any, are
recorded at the fair market value of the securities received. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the Funds. In
addition, the Fund will also incur fees and expenses indirectly as a
shareholder in the underlying funds. Because the underlying funds have
varied expense and fee levels and the Fund may own different proportions
of underlying funds at different times, the amount of fees and expenses
indirectly incurred by the Fund will vary.
10
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
PURCHASES AND REDEMPTIONS OF FUND SHARES
Effective June 30, 2003, the Fund began to charge purchase and redemption
fees on Fund shares. The Fund's purchase premium and redemption fee is
approximately equal to the weighted average of the purchase premiums and
redemption fees, if any, of the underlying funds in which the Fund was
invested as of June 30, 2003. The level of purchase premium and redemption
fee for the Fund will be adjusted approximately annually to account for
changes in the Fund's investments (i.e. changes in the percentage of Fund
assets allocated to each underlying fund). The premiums on cash purchases
and fees on redemption of Fund shares is 0.12% of the amount invested or
redeemed. The redemption fee is only applicable to shares purchased on or
after June 30, 2003 and is subject to adjustment based upon purchase
premiums and redemption fees of the underlying Funds in which it invests
and the estimated transaction costs of investing directly in securities.
If the Manager determines that any portion of a cash purchase or
redemption is offset by a corresponding cash redemption or purchase
occurring on the same day, the purchase premium or redemption fee charged
by the Fund will be reduced by 100% with respect to that portion. In
addition, the purchase premium or redemption fee charged by the Fund may
be waived if the Manager determines the Fund is either substantially
overweighted or underweighted in cash so that a redemption or purchase
will not require a securities transaction. All purchase premiums and
redemption fees are paid to and recorded by the Fund as paid-in capital.
For the six months ended August 31, 2003, the Fund received $15,660 in
purchase premiums and $0 in redemption fees, respectively. There is no
premium for reinvested distributions.
INVESTMENT RISK
The Fund is subject to the investment risk associated with an investment
in the underlying funds, some of which may invest in foreign securities.
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares. The Fund will invest in Class III shares of each underlying fund
being offered. Like the management fee (as described below), the Fund's
shareholder service fee will be waived (but not below zero) to the extent
of the indirect shareholder
11
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
service fees paid in connection with the Fund's investment in shares of
the underlying funds. For the six months ended August 31, 2003,
shareholder service fees incurred indirectly by the Fund were .134%
(annualized) of the Fund's average daily net assets.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, custody
fees, fees and expenses of the independent Trustees of the Trust
(including legal fees), brokerage commissions and other investment-related
costs, hedging transaction fees, extraordinary, non-recurring and certain
other unusual expenses (including taxes), securities lending fees and
expenses, interest expense and transfer taxes ("fund expenses")) plus the
amount of fees and expenses (excluding shareholder service fees and fund
expenses, as defined above) incurred indirectly by the Fund though
investment in underlying funds, exceed the management fee. Because GMO
will not reimburse expenses incurred indirectly by the Fund to the extent
they exceed .50%, and because the amount of fees and expenses incurred
indirectly by the Fund will vary, the operating expenses (excluding
shareholder service fee and fund expenses, as defined above) incurred
indirectly by the Fund through its investment in the underlying funds may
exceed .50% of the Fund's average daily net assets.
For the six months ended August 31, 2003, indirect operating expenses
(excluding shareholder service fees and investment-related expenses) and
indirect investment-related expenses (including but not limited to
interest expense, foreign audit expense and investment-related legal
expense) incurred by the Fund were .436% (annualized) and less than .001%
(annualized) of the Fund's average daily net assets, respectively.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2003 was $320. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, substantially all of the Fund's shares were held by
accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003
aggregated $14,110,396 and $100,000, respectively.
12
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$45,368,974 $3,612,286 $(6,903) $3,605,383
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 74.4% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the outstanding
shares of the Fund. One of the shareholders is another Fund of GMO Trust.
Investment activities of these shareholders may have a material effect on
the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
---------------------- ------------------------
Shares Amount Shares Amount
Class III: --------- ----------- ---------- ------------
Shares sold 2,993,401 $28,907,814 2,164,937 $ 20,773,802
Shares issued to shareholders
in reinvestment of distributions -- -- 54,717 509,414
Shares repurchased (714,681) (6,897,736) (1,287,322) (12,081,955)
--------- ----------- ---------- ------------
Net increase 2,278,720 $22,010,078 932,332 $ 9,201,261
========= =========== ========== ============
</Table>
13
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FUTURES CONTRACTS
<Table>
<Caption>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- ------------- ------------------ ------------- --------------
Sales
65 CAC40 September 2003 $ 2,371,052 $ (21,203)
15 DAX September 2003 1,437,082 (70,981)
101 FTSE 100 September 2003 6,665,850 (31,583)
6 HANG SENG September 2003 419,266 (7,470)
11 IBEX 35 September 2003 861,506 (17,032)
7 MIB30 September 2003 979,760 5,364
73 OMX September 2003 513,590 2,224
25 SPI 200 September 2003 1,293,286 (33,187)
93 S&P 500 September 2003 23,429,025 (62,421)
60 TSE TOPIX September 2003 5,155,126 (606,402)
---------
$(842,691)
=========
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
14
<Page>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- -------------- ----------- --------------
Buys
9/26/03 CHF 1,633,682 $ 1,167,129 $ (24,440)
9/26/03 DKK 1,549,792 228,983 8,632
9/26/03 EUR 3,380,158 3,708,628 105,209
9/26/03 GBP 821,851 1,297,929 20,611
10/31/03 HKD 2,574,662 330,108 583
10/31/03 JPY 239,490,500 2,056,547 40,633
9/26/03 SEK 2,156,180 257,585 10,756
10/31/03 SGD 341,715 195,007 1,636
---------
$ 163,620
=========
Sales
10/31/03 AUD 1,591,674 $ 1,023,994 $ (39,786)
9/26/03 CHF 3,678,045 2,627,653 59,803
9/26/03 DKK 2,161,810 319,408 (11,896)
9/26/03 EUR 9,364,952 10,274,998 (239,157)
9/26/03 GBP 4,149,425 6,553,091 (48,239)
10/31/03 HKD 3,878,896 497,330 (872)
10/31/03 JPY 673,563,670 5,784,010 (112,783)
9/26/03 NOK 790,000 105,259 (394)
9/26/03 SEK 5,417,628 647,210 (5,889)
10/31/03 SGD 514,220 293,450 (443)
---------
$(399,656)
=========
</Table>
CURRENCY ABBREVIATIONS:
<Table>
AUD - Australian Dollar
CHF - Swiss Franc
DKK - Danish Krona
EUR - Euro
GBP - British Pound
HKD - Hong Kong Dollar
JPY - Japanese Yen
NOK - Norwegian Krone
SEK - Swedish Krona
SGD - Singapore Dollar
</Table>
15
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE/
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 21.3%
AUSTRIA -- 2.3%
USD 2,500,000 Bank Austria AG, 144A, 7.25%, due 02/15/17 2,887,000
-----------
CANADA -- 1.6%
GBP 1,000,000 Province of Quebec, 8.63%, due 11/04/11 1,944,920
-----------
UNITED STATES -- 17.4%
ASSET-BACKED SECURITIES -- 13.3%
GBP 4,000,000 RMAC Series 03-NS1A Class A2A, 144A,
Variable Rate, 3 mo. GBP LIBOR + .45%, 1.63%,
due 06/12/35 6,330,164
GBP 4,000,000 RMAC Series 03-NS2A Class A2A, 144A, AMBAC,
Variable Rate, 3 mo. GBP LIBOR + .40%, 4.04%,
due 09/12/35 6,327,000
USD 3,587,451 Medallion Trust Series 03-1G Class A,
Variable Rate, 3 mo. LIBOR + .19%, 1.22%, due
12/21/33 3,589,352
-----------
16,246,516
-----------
U.S. GOVERNMENT -- 4.1%
USD 3,360,000 U.S. Treasury Inflation Indexed Note, 3.88%, due
01/15/09(a) 3,754,800
USD 1,091,740 U.S. Treasury Inflation Indexed Note, 4.25%, due
01/15/10 1,250,213
-----------
5,005,013
-----------
TOTAL UNITED STATES 21,251,529
-----------
TOTAL DEBT OBLIGATIONS (COST $26,059,435) 26,083,449
-----------
MUTUAL FUNDS -- 76.4%
757,799 GMO Alpha LIBOR Fund 18,308,423
348,508 GMO Emerging Country Debt Fund, Class III 3,736,010
2,838,599 GMO Short-Duration Collateral Fund 71,561,081
-----------
TOTAL MUTUAL FUNDS (COST $93,553,556) 93,605,514
-----------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------
CALL OPTIONS PURCHASED -- 0.4%
CROSS CURRENCY OPTIONS -- 0.4%
GBP 15,300,000 GBP Call/JPY Put, Expires 01/23/04, Strike 184.00 505,572
-----------
TOTAL CALL OPTIONS PURCHASED (COST $915,744) 505,572
-----------
PUT OPTIONS PURCHASED -- 1.2%
CROSS CURRENCY OPTIONS -- 1.2%
EUR 41,100,000 EUR Put/USD Call, Expires 10/1/03, Strike 1.1150 1,219,271
GBP 20,000,000 GBP Put/USD Call, Expires 11/6/03, Strike 1.545 241,378
-----------
1,460,649
-----------
TOTAL PUT OPTIONS PURCHASED (COST $779,837) 1,460,649
-----------
TOTAL INVESTMENTS -- 99.3%
(Cost $121,308,572) 121,655,184
Other Assets and Liabilities (net) -- 0.7% 908,446
-----------
TOTAL NET ASSETS -- 100.0% $122,563,630
===========
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
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
CURRENCY ABBREVIATIONS:
</Table>
<Table>
AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - British Pound
JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollars
SEK - Swedish Krona
USD - United States Dollar
</Table>
(a) All or a portion of this security has been segregated to cover margin
requirements on open financial futures contracts and open swap contracts
(Note 6).
See accompanying notes to the financial statements. 3
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $121,308,572) (Note 1) $121,655,184
Cash 483,368
Foreign currency, at value (cost $211,184) (Note 1) 195,054
Interest receivable 523,948
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 1,581,778
Net receivable for open swap contracts (Notes 1 and 6) 1,132,413
Receivable for expenses reimbursed by Manager (Note 2) 13,275
------------
Total assets 125,585,020
------------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 20,683
Shareholder service fee 16,328
Payable for open forward foreign currency contracts
(Notes 1 and 6) 727,216
Payable for closed forward currency contracts (Note 1) 1,967,452
Net payable for closed swap contracts (Notes 1 and 6) 103,616
Payable for variation margin on open futures contracts
(Notes 1 and 6) 142,521
Accrued expenses 43,574
------------
Total liabilities 3,021,390
------------
NET ASSETS $122,563,630
============
NET ASSETS CONSIST OF:
Paid-in capital $138,617,317
Distributions in excess of net investment income (77,138)
Accumulated net realized loss (18,988,482)
Net unrealized appreciation 3,011,933
------------
$122,563,630
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $122,563,630
============
SHARES OUTSTANDING:
Class III 16,178,385
============
NET ASSET VALUE PER SHARE:
Class III $ 7.58
============
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest $ 734,230
Dividends from investment company shares 359,933
----------
Total income 1,094,163
----------
EXPENSES:
Management fee (Note 2) 159,386
Custodian and transfer agent fees 47,614
Audit fees 23,736
Legal fees 4,968
Registration fees 3,956
Trustees fees and related expenses (Note 2) 2,109
Miscellaneous 1,655
Fees reimbursed by Manager (Note 2) (80,734)
----------
162,690
Indirectly incurred fees waived or borne by Manager (Note
2) (12,409)
----------
150,281
----------
Shareholder service fee (Note 2) - Class III 125,838
Shareholder service fee waived (Note 2) - Class III (4,305)
----------
121,533
----------
Net expenses 271,814
----------
Net investment income 822,349
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (1,514,615)
Realized gains distributions from investment company
shares 129,288
Closed futures contracts 1,006,770
Closed swap contracts (2,640,088)
Written options 124,740
Foreign currency, forward contracts and foreign
currency related transactions 6,437,823
----------
Net realized gain 3,543,918
----------
Change in net unrealized appreciation (depreciation) on:
Investments 3,090,912
Open futures contracts 359,184
Open swap contracts 124,081
Foreign currency, forward contracts and foreign
currency related transactions (109,959)
----------
Net unrealized gain 3,464,218
----------
Net realized and unrealized gain 7,008,136
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,830,485
==========
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 822,349 $ 3,032,237
Net realized gain 3,543,918 37,728,716
Change in net unrealized appreciation (depreciation) 3,464,218 6,438,357
------------- ------------
Net increase in net assets from operations 7,830,485 47,199,310
------------- ------------
Distributions to shareholders from:
Net investment income
Class III -- (37,454,172)
------------- ------------
Total distributions from net investment income -- (37,454,172)
------------- ------------
Net realized gains
Class III (38,014,698) (4,977,299)
------------- ------------
Total distributions from net realized gains (38,014,698) (4,977,299)
------------- ------------
Net share transactions (Note 5):
Class III (83,094,533) (41,999,305)
------------- ------------
Decrease in net assets resulting from net share
transactions (83,094,533) (41,999,305)
------------- ------------
Total decrease in net assets (113,278,746) (37,231,466)
NET ASSETS:
Beginning of period 235,842,376 273,073,842
------------- ------------
End of period (including distributions in excess of
net investment income of $77,138 and $899,487,
respectively) $ 122,563,630 $235,842,376
============= ============
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------------------
(UNAUDITED) 2003 2002 2001(D) 2000 1999
----------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.20 $ 9.33 $ 10.04 $ 9.41 $ 9.87 $ 10.15
-------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income 0.04(a)+ 0.11(a)+ 0.53(a)+ 0.51(a)+ 0.51 0.55
Net realized and
unrealized gain
(loss) 0.35 1.47 (0.66) 0.12 (0.71) (0.25)
-------- -------- -------- -------- -------- --------
Total from
investment
operations 0.39 1.58 (0.13) 0.63 (0.20) 0.30
-------- -------- -------- -------- -------- --------
Less distributions to
shareholders:
From net investment
income -- (1.51) (0.39) -- (0.26) (0.46)
From net realized
gains (2.01) (0.20) (0.19) -- -- (0.12)
-------- -------- -------- -------- -------- --------
Total distributions (2.01) (1.71) (0.58) -- (0.26) (0.58)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 7.58 $ 9.20 $ 9.33 $ 10.04 $ 9.41 $ 9.87
======== ======== ======== ======== ======== ========
TOTAL RETURN(b) 4.38%** 17.76% (1.34)% 6.70% (2.07)% 2.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000's) $122,564 $235,842 $273,074 $291,112 $182,730 $163,210
Net operating expenses
to average daily net
assets 0.32%(e)* 0.33%(e) 0.32%(e) 0.33%(e) 0.34% 0.34%
Interest expense to
average daily net
assets -- -- -- -- 0.16%(c) --
Total net expenses to
average daily net
assets 0.32%(e)* 0.33% 0.32% 0.33% 0.50% 0.34%
Net investment income
to average daily net
assets 0.98%(a)* 1.10%(a) 5.36%(a) 5.34%(a) 5.09% 5.86%
Portfolio turnover
rate 25%** 50% 28% 35% 116% 75%
Fees and expenses
reimbursed by the
Manager to average
daily net assets: 0.12%* 0.08% 0.08% 0.08% 0.08% 0.28%
</Table>
+ Computed using average shares outstanding throughout the period.
(a) Net investment income is affected by the timing of the declaration of
dividends by other Funds of the Trust in which the Fund invests.
(b) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(c) Interest expense incurred as a result of entering into reverse
repurchase agreements is included in the Fund's net expenses. Income
earned on investing proceeds from reverse repurchase agreements is
included in interest income.
(d) 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 5.36% to 5.34%. Per share and
ratio/supplemental data for periods prior to March 1, 2000 have not been
restated to reflect this change.
(e) Net expenses exclude expenses incurred indirectly through investment in
underlying funds.
See Note 2.
* Annualized.
** Not Annualized.
See accompanying notes to the financial statements. 7
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Global Bond Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund seeks high total return through investment in global bond and
currency markets, primarily by investing in GMO Short-Duration Collateral
Fund and "synthetic" bonds (created by the Manager by combining a futures
contract, swap contract, or option, on a fixed income security with cash,
a cash equivalent, or another fixed income security). The Fund's benchmark
is the J.P. Morgan Global Government Bond Index.
At August 31, 2003, 58.5% of the Fund was invested in the GMO
Short-Duration Collateral Fund and 14.9% of the Fund was invested in the
GMO Alpha LIBOR Fund, separate funds of GMO Trust managed by GMO. Shares
of the GMO Alpha LIBOR Fund and the GMO Short-Duration Collateral Fund are
not publicly available for direct purchase. At August 31, 2003, 3.0% of
the net assets of the Fund was invested in the GMO Emerging Country Debt
Fund, a separate fund of GMO Trust managed by GMO. The financial
statements of the GMO Alpha LIBOR Fund, the GMO Short-Duration Collateral
Fund and the GMO Emerging Country Debt Fund should be read in conjunction
with the Fund's financial statements.
In November 2002, certain bonds ("NPF bonds") held by GMO Alpha LIBOR Fund
("Alpha LIBOR Fund"), in which the Fund had significant investments,
defaulted amid allegations of fraud and significant violations of the
bonds' indentures. Currently, no market exists for the NPF bonds, and they
are being valued at fair value by the trustees of GMO Trust or persons
acting at their direction. The devaluation of the NPF bonds had a negative
impact on the Fund's net asset value per share.
In late November 2002, Alpha LIBOR Fund undertook a reorganization
transaction with a new series of GMO Trust, GMO Short-Duration Collateral
Fund ("SDCF") and approximately 78% of the Fund's interest in Alpha LIBOR
Fund was transferred to SDCF in exchange for SDCF shares. The
reorganization was treated as a sale of the Alpha LIBOR Fund shares for
financial reporting purposes and a distribution by Alpha LIBOR Fund for
tax purposes. Accordingly, for financial reporting purposes, the Fund
recognized a loss on the sale of the Alpha LIBOR shares of approximately
$18,547,062. In addition, the Fund recognized for tax, but not for
financial reporting
8
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
purposes, ordinary income of $7,989,124 and long-term capital gains of
$1,424,936 from Alpha LIBOR Fund. $27,961,122 was added to the tax cost
basis of the Fund's holdings of Alpha LIBOR Fund.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of other funds of the Trust ("underlying funds") and other mutual
funds are valued at their net asset value as reported on each business
day. 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.
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.
9
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Certain securities held by the Fund, or underlying funds in which the Fund
invests, were valued on the basis of a price provided by a principal
market maker. The prices provided by the principal market makers may
differ from the value that would be realized if the securities were sold
and the differences could be material to the financial statements.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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 6 and represents the currency
exposure the Fund has acquired or hedged through forward currency
contracts as of August 31, 2003.
10
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for
all open futures contracts as of August 31, 2003.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the
11
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
proceeds on the closing transaction to determine the realized gain or
loss. The risk associated with purchasing put and call options is limited
to the premium paid. See Schedule of Investments for all open purchased
option contracts as of August 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 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
12
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. The Fund also may enter into structured
warrants, which are derivatives like swaps and have risks similar to
swaps. 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 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 6 for a summary of open swap agreements as of August 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.
13
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
In connection with transactions in repurchase agreements, if the seller
defaults or enters into insolvency proceedings and the value of the
collateral declines, recovery of cash by the Fund may be delayed or
limited.
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. The market value of the securities the Fund has sold is
determined daily and any additional required collateral is allocated to or
sent by the fund on the next business day. For the six months ended
August 31, 2003, the Fund did not enter into any reverse repurchase
agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 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 interest and 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 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.
14
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
The Fund elected to defer to March 1, 2003 post-October losses of
$3,238,674.
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 the accrual basis, and is adjusted for the amortization of
premiums and of discounts. Dividend income, net of applicable withholding
taxes, is recorded on the ex-dividend date or non-cash dividends, if any,
are recorded at the fair market value of the securities received. Interest
income on inflation indexed securities is accrued daily based upon an
inflation adjusted principal. Additionally, any increase in the principal
or face amount of the securities is recorded as interest income. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets. The risks described above apply to an even greater
extent to investments in emerging markets. The securities markets of
emerging countries are generally smaller, less developed, less liquid, and
more volatile than the securities markets of the U.S. and developed
foreign markets.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .19% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net
15
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
assets at the annual rate of .15% for Class III shares. The Fund may
invest in Class III shares of GMO Emerging Country Debt Fund ("ECDF").
Like the management fee (as described below), the Fund's shareholder
service fee will be waived (but not below zero) to the extent of the
indirect shareholder service fees paid in connection with the Fund's
investment in ECDF. The Fund does not incur any indirect shareholder
service fees as a result of the Fund's investment in Alpha LIBOR Fund and
SDCF.
The Fund incurs fees and expenses indirectly as a shareholder in Alpha
LIBOR Fund and SDCF. For the six months ended August 31, 2003, indirect
operating expenses (excluding shareholder service fees (ECDF only) and
investment-related expenses) and indirect investment-related expenses
(including, but not limited to, interest expense, foreign audit expense,
and investment-related legal expense) incurred indirectly by the Fund
through its investment in underlying funds were .021% (annualized) and
.012% (annualized) of the Fund's average daily net assets, respectively.
For the six months ended August 31, 2003, shareholder service fees
incurred indirectly by the Fund were .005% (annualized) of the Fund's
average daily net assets.
GMO has entered into a binding agreement effective until at least
June 30, 2004, to reimburse the Fund to the extent that the Fund's total
direct annual operating expenses plus the amount of indirect fees and
operating expenses incurred through its investment in underlying funds
exceed the management fee. For purposes of this calculation, the Fund's
total direct annual operating expenses excludes shareholder service fees,
fees and expenses of the independent Trustees of the Trust (including
legal fees) ("Trustees fees"), and the following investment-related costs:
brokerage commissions, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses, interest expense and transfer taxes.
Additionally, the indirect fees and operating expenses incurred through
investment in underlying funds excludes investment-related expenses and,
with the exception of the Fund's investment in ECDF, Trustees fees.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 2003, was $1,465. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003,
aggregated $39,444,222 and $152,098,328, respectively.
16
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
At August 31, 2003, the approximate 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
-------------- ---------------- ---------------- --------------
$131,421,934 $-- $(9,766,750) $(9,766,750)
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 78.2% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
-------------------------- --------------------------
Shares Amount Shares Amount
Class III: ----------- ------------- ----------- -------------
Shares sold 754,019 $ 6,800,000 6,930,581 $ 62,503,500
Shares issued to shareholders in reinvestment
of distributions 4,723,894 38,014,698 4,515,798 39,648,710
Shares repurchased (14,929,900) (127,909,231) (15,099,456) (144,151,515)
----------- ------------- ----------- -------------
Net increase (decrease) (9,451,987) $ (83,094,533) (3,653,077) $ (41,999,305)
=========== ============= =========== =============
</Table>
17
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- -------------- ----------- --------------
Buys
10/16/03 AUD 14,500,000 $ 9,343,447 $ 8,565
10/23/03 CAD 4,400,000 3,164,250 28,448
9/11/03 CHF 22,400,000 15,997,281 (440,543)
11/13/03 EUR 55,600,000 60,917,951 545,805
9/02/03 GBP 4,600,000 7,276,050 (51,690)
11/06/03 GBP 2,900,000 4,566,947 22,589
9/25/03 JPY 4,780,000,000 40,996,997 842,069
10/09/03 NZD 11,000,000 6,322,718 (37,042)
---------
$ 918,201
=========
Sales
10/23/03 CAD 5,600,000 $ 4,027,227 $ (39,049)
9/02/03 GBP 4,600,000 7,276,050 33,534
9/25/03 JPY 700,000,000 6,003,744 (104,430)
=========
$(109,945)
=========
</Table>
FORWARD CROSS CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Deliver/Units of Receive/In Appreciation
Date Currency Exchange For (Depreciation)
---------- ----------------- ---------------- --------------
9/18/03 CHF 41,559,883 EUR 27,100,000 $ 53,628
10/02/03 EUR 5,900,000 NOK 48,183,235 (54,462)
10/30/03 EUR 11,700,000 SEK 107,892,699 47,140
--------
$ 46,306
========
</Table>
18
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
<Table>
<Caption>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- ------------------------------------- ------------------ ------------- --------------
Buys
29 Australian Government Bond 10 Yr. September 2003 $ 1,948,480 $(57,382)
60 Australian Government Bond 3 Yr. September 2003 3,978,514 (56,024)
4 Canadian Government Bond 10 Yr. December 2003 310,593 1,992
20 U.S. Long Bond December 2003 2,120,000 32,854
13 U.S. Treasury Note 10 Yr . December 2003 1,426,344 11,199
--------
$(67,361)
========
Sales
57 Euro BOBL September 2003 $ 6,959,555 $ 40,427
58 Euro BOBL December 2003 7,023,705 (8,018)
83 Euro Bund September 2003 10,413,845 28,072
83 Euro Bund December 2003 10,330,921 (11,475)
20 Japanese Government Bond 10 Yr. September 2003 23,551,594 747,157
39 U.S. Treasury Note 5 Yr. December 2003 4,284,516 (15,459)
75 UK Gilt Long Bond December 2003 13,946,290 (14,723)
--------
$765,981
========
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
WRITTEN OPTION TRANSACTIONS
<Table>
<Caption>
Puts Calls
---------------------------- ----------------------------
Principal Amount Principal Amount
of Contracts of Contracts
(000's omitted) Premiums (000's omitted) Premiums
---------------- ---------- ---------------- ----------
Outstanding, beginning of period -- $ -- -- $ --
Options written 12,600,000 124,740 12,600,000 124,740
Options exercised -- -- (12,600,000) (124,740)
Options expired (12,600,000) (124,740) -- --
-------------- --------- -------------- ---------
Outstanding, end of period -- $ -- -- $ --
============== ========= ============== =========
</Table>
19
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------- ---------- -------------------------------------------------- --------------
INTEREST RATE SWAPS
15,000,000 EUR 3/21/05 Agreement with UBS AG dated 3/17/00 to receive the $ 774,343
notional amount multiplied by 5.222% and to pay
the notional amount multiplied by the 3 month
Floating Rate EURIBOR adjusted by a specified
spread.
8,500,000 GBP 6/30/05 Agreement with Citibank N.A. dated 6/30/03 to pay 308,025
the notional amount multiplied by 3.6675% and to
receive the notional amount multiplied by the 6
month Floating Rate British LIBOR adjusted by a
specified spread.
14,000,000 USD 7/02/05 Agreement with Deutsche Bank AG dated 6/30/03 to (190,287)
receive the notional amount multiplied by 1.55%
and to pay the notional amount multiplied by the 3
month LIBOR adjusted by a specified spread.
18,900,000 CAD 7/31/05 Agreement with Deutsche Bank AG dated 7/31/03 to 33,248
pay the notional amount multiplied by 3.145% and
to receive the notional amount multiplied by the 3
month Floating Rate CDOR adjusted by a specified
spread.
13,000,000 USD 8/04/05 Agreement with Goldman Sachs International dated (46,177)
7/31/03 to receive the notional amount multiplied
by 1.975% and to pay the notional amount
multiplied by the 3 month LIBOR adjusted by a
specified spread.
</Table>
20
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------- ---------- -------------------------------------------------- --------------
INTEREST RATE SWAPS -- CONTINUED
11,200,000 EUR 9/01/05 Agreement with Citibank N.A. dated 8/28/03 to pay $ (45,399)
the notional amount multiplied by 2.82% and to
receive the notional amount multiplied by the 6
month Floating Rate EURIBOR adjusted by a
specified spread.
12,400,000 USD 9/02/05 Agreement with JP Morgan Chase Bank dated 8/28/03 5,022
to receive the notional amount multiplied by 2.25%
and to pay the notional amount multiplied by the 3
month LIBOR adjusted by a specified spread.
500,000 CHF 4/02/08 Agreement with Citibank N.A. dated 4/02/03 to (7,686)
receive the notional amount multiplied by 1.885%
and to pay the notional amount multiplied by the 6
month Floating Rate Swiss LIBOR adjusted by a
specified spread.
500,000 CHF 4/02/13 Agreement with Citibank N.A. dated 4/02/03 to (9,011)
receive the notional amount multiplied by 2.71%
and to pay the notional amount multiplied by the 6
month Floating Rate Swiss LIBOR adjusted by a
specified spread.
3,000,000 EUR 3/21/30 Agreement with UBS AG dated 3/17/00 to receive the 408,196
notional amount multiplied by 5.895% and to pay
the notional amount multiplied by the 3 month
Floating Rate EURIBOR adjusted by a specified
spread.
</Table>
21
<Page>
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
-------------- ---------- -------------------------------------------------- --------------
TOTAL RETURN SWAPS
75,000,000 USD 9/24/03 Agreement with Morgan Guaranty Trust Company dated $ 5,034
9/20/01 to receive (pay) the notional amount
multiplied by the return on the JP Morgan Hedged
Government Bond Index and to pay the notional
amount multiplied by the 1 month LIBOR adjusted by
a specific spread.
31,000,000 USD 7/21/04 Agreement with JP Morgan Chase Bank dated 7/01/03 (52,035)
to receive (pay) the notional amount multiplied by
the return on the JP Morgan Non-U.S. Traded Total
Return Government Bond Index, hedged in U.S.
dollars and to pay the notional amount multiplied
by the 1 month LIBOR adjusted by a specified
spread.
31,000,000 USD 7/21/05 Agreement with JP Morgan Chase Bank dated 7/01/03 (52,009)
to receive (pay) the notional amount multiplied by
the return on the JP Morgan Non-U.S. Traded Total
Return Government Bond Index, hedged in U.S.
dollars and to pay the notional amount multiplied
by the 1 month LIBOR adjusted by a specified
spread.
----------
$1,131,264
==========
</Table>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
22
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
COMMON STOCKS -- 92.1%
AUSTRALIA -- 3.0%
2,113,885 Amcor Ltd 12,354,955
2,303,800 AMP Ltd 9,945,867
12,673 Batvia Mining Ltd* 820
1,400,000 BHP Billiton Ltd 9,904,219
830,518 Foodland Associated 9,993,106
4,098,480 John Fairfax Holdings Ltd 8,303,080
824,550 Lihir Gold Ltd 773,850
76,000 Lihir Gold Ltd ADR 144A+ 1,451,600
553,022 Lion Nathan Ltd 1,886,362
4,793,127 Oil Search Ltd 2,823,140
10,946,321 Pasminco Ltd*(a) --
3,600,000 Promina Group Ltd* 6,966,999
1,122,427 Publishing & Broadcasting Ltd 8,027,724
516,800 Sons of Gwalia Ltd 1,003,496
976,800 Telstra Corp Ltd 3,173,814
974,107 Westpac Banking Corp 9,867,180
--------------
86,476,212
--------------
AUSTRIA -- 0.5%
41,785 Erste Bank Der Oesterreichischen Sparkassen AG 3,848,976
17,970 Flughafen Wien AG 669,414
14,357 Oesterreichische Brau Beteiligungs AG 1,923,031
28,260 OMV AG 3,320,162
319,810 Telekom Austria AG* 3,339,145
20,964 VA Technologie AG (Bearer)* 589,219
57,920 Wienerberger AG 1,103,293
--------------
14,793,240
--------------
BELGIUM -- 1.4%
65,614 Almanij NV 2,644,501
25,192 CFE (CIE Francois D'enter) 5,725,267
447,920 Dexia 5,581,605
30,783 Electrabel SA 7,719,156
146,065 Fortis, Class B 2,455,184
40,685 Groupe Bruxelles Lambert SA 1,861,318
230,720 KBC Bankverzekeringsholding 8,972,151
51,682 Solvay Et Cie 3,398,826
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
BELGIUM -- CONTINUED
79,349 UCB SA 2,109,109
--------------
40,467,117
--------------
BRAZIL -- 0.3%
533,600 Cia de Concessoes Rodoviarias 2,342,722
109,800 Ultrapar Participacoes SA ADR 1,032,120
252,600 Votorantim Celulose e Papel SA ADR 6,643,380
--------------
10,018,222
--------------
CANADA -- 1.4%
568,000 BCE Inc 12,296,464
1,597,200 Hudson's Bay Co 10,236,173
220,100 KAP Resources Ltd*(a) 1,587
64,500 Manulife Financial Corp 1,952,925
164,000 Methanex Corp 1,642,187
105,700 Rothmans Inc 1,935,465
89,000 Sun Life Financial Inc 1,950,474
486,160 Timberwest Forest Corp 4,139,098
196,000 Toronto-Dominion Bank 5,517,644
--------------
39,672,017
--------------
CHINA -- 0.6%
4,619,440 China Mobile Ltd 11,875,319
3,923,230 Shanghai Industrial Holdings Ltd, Class H 6,539,262
--------------
18,414,581
--------------
DENMARK -- 0.4%
271,320 Carlsberg A/S, Class B 10,831,218
--------------
FINLAND -- 2.7%
1,842,900 Huhtamaki Oyj, Class I 18,614,543
130,200 Jaakko Poyry Group 2,530,154
1,146,000 M-real Oyj 10,153,621
1,992,800 Nokia Oyj 32,643,395
610,000 Rapala VMC Oyj 3,013,735
515,900 Uponor Oyj 11,611,335
--------------
78,566,783
--------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
FRANCE -- 4.9%
38,260 Accor SA 1,490,781
46,125 Alcatel SA* 501,342
199,900 Arcelor 2,578,775
98,540 Assurances Generales de France 4,427,015
30,882 Aventis SA 1,499,973
375,140 Axa 6,651,639
93,105 BIC SA 3,833,249
243,082 BNP Paribas 12,111,002
6,082 Cap Gemini SA* 250,070
24,610 Casino Guichard Perrachon SA 1,958,901
32,920 Christian Dior SA 1,572,576
183,360 Cie de Saint-Gobain 7,164,656
855,600 Eurotunnel SA Units (Bearer)* 713,916
331,800 France Telecom SA* 8,232,801
45,038 Group Danone 6,175,958
15,875 Guyenne et Gascogne SA 1,603,483
19,898 Imerys SA 3,279,087
21,278 Lafarge SA 1,428,532
136,466 Lagardere S.C.A. 6,199,801
136,204 Michelin SA, Class B 5,529,929
25,383 Pernod Ricard 2,177,884
170,992 Peugeot SA 7,804,024
61,200 Publicis Groupe 1,792,669
82,555 Schneider Electric SA 4,457,534
39,763 Sophia (EX-SFI) 1,453,738
985,020 Suez SA 15,540,486
22,810 Technip SA 2,052,282
90,814 Thales SA 2,603,289
155,263 Total SA 23,813,716
95,931 Wendel Investissement 3,170,212
22,431 Worms et Cie SA 418,659
--------------
142,487,979
--------------
GERMANY -- 10.3%
50,530 Aareal Bank AG 1,152,810
269,520 Adidas-Salomon AG 22,548,038
224,881 Allianz AG (Registered) 19,973,955
288,500 BASF AG 13,398,278
139,440 Bilfinger & Berger 3,804,316
584,310 Commerzbank AG 8,179,303
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
GERMANY -- CONTINUED
1,330,320 Continental AG 34,250,093
892,380 DaimlerChrysler AG (Registered) 34,271,445
61,630 Depfa Bank Plc 5,632,993
283,985 Deutsche Bank AG 16,384,414
1,629,570 Deutsche Lufthansa AG 22,381,702
2,231,130 Deutsche Telekom* 31,966,727
126,000 E. On AG 6,501,764
317,450 Fraport AG Frankfurt Airport Services Worldwide* 8,399,533
144,448 Fresenius Medical Care AG 7,342,692
231,240 K&S AG 4,506,342
36,310 Koelnische Rueckversicherungs-Gesellschaft AG (New
Shares)* 3,065,599
117,410 Koelnische Rueckversicherungs-Gesellschaft AG
(Registered)* 9,733,574
99,590 MG Technologies AG 994,993
101,900 Muenchener Rueckversicherungs AG 10,453,694
89,770 Repower Systems AG 1,862,755
60,500 Rheinmetall AG 1,434,736
147,100 Schering AG 5,938,395
934,100 ThyssenKrupp AG 12,645,012
261,000 Volkswagen AG 12,808,870
--------------
299,632,033
--------------
GREECE -- 0.0%
117,800 Greek Organization of Football Prognostics SA 1,404,552
--------------
HONG KONG -- 2.8%
9,835,430 Hang Lung Group Co Ltd 10,088,461
8,147,420 Hang Lung Properties Ltd 9,401,653
3,988,800 HKR International Ltd* 1,137,926
7,124,001 Hong Kong Land Holdings 9,546,161
5,696,000 Hopewell Highway Infrastructure Ltd* 2,811,721
3,604,000 Hysan Development Co Ltd 4,251,226
2,382,573 Jardine Strategic Holdings Ltd 8,100,748
2,600,000 SCMP Group Ltd 1,100,092
980,240 Swire Pacific Ltd, Class A 5,504,883
7,531,290 Swire Pacific Ltd, Class B 6,469,724
4,017,790 Wharf Holdings Ltd 9,427,139
9,201,000 Wheelock and Co Ltd 8,670,896
1,848,000 Yue Yuen Industrial Holdings 5,497,073
--------------
82,007,703
--------------
</Table>
See accompanying notes to the financial statements.
4
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
INDIA -- 1.4%
475,000 Gail India Ltd GDR 144A 8,184,250
224,300 Hindalco Industries Ltd 144A 4,441,140
850,000 ICICI Bank Ltd 3,319,154
569,600 ICICI Bank Ltd ADR 5,519,424
345,000 ITC Ltd GDR 6,717,150
295,000 Reliance Industries Ltd GDR 144A 5,398,500
450,000 Satyam Computer Services Ltd 2,226,440
210,400 Satyam Computer Services Ltd ADR 2,505,864
137,000 State Bank of India GDR 3,438,700
--------------
41,750,622
--------------
INDONESIA -- 0.3%
9,307,915 Astra International Tbk* 4,168,542
32,038,000 Bank Mandiri Persero PT* 3,209,464
2,336,500 Indonesian Satellite Corp Tbk PT 2,230,483
35,700 PT Indonesian Satellite Corp Tbk ADR 340,578
--------------
9,949,067
--------------
IRELAND -- 1.6%
1,589,737 Allied Irish Banks Plc 22,323,311
1,679,570 Bank of Ireland 19,970,519
400,000 Grafton Group Plc New Units* 2,059,660
200,000 Irish Life & Permanent Plc 2,375,856
--------------
46,729,346
--------------
ITALY -- 3.5%
591,800 Alleanza Assicurazioni SPA 5,340,840
197,831 Assicurazioni Generali SPA 4,250,578
1,003,331 Banca Intesa SPA 3,012,759
734,523 Banca Intesa SPA (Savings Shares) 1,641,091
633,724 Banca Monte dei Paschi di Siena SPA 1,662,880
256,039 Banca Nazionale Del Lavoro SPA* 398,326
195,354 Buzzi Unicem SPA 1,895,996
1,199,960 CIR-Compagnie Industriali Riunite SPA 1,504,512
178,447 Danieli and Co SPA (Savings Shares) 321,304
1,458,035 Enel SPA 8,884,310
1,895,521 ENI-Ente Nazionale Idrocarburi SPA 28,635,833
45,747 Ericsson SPA 989,445
175,010 Fiat SPA* 1,183,604
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
ITALY -- CONTINUED
74,778 Fondiaria - SAI 635,444
163,946 Grouppo Editoriale L'Espresso 703,786
359,370 Italcementi SPA 2,462,006
58,000 Pagnossin SPA* 104,432
508,471 RAS SPA 7,313,079
124,852 Sanpaolo IMI SPA 1,199,406
778,700 Snam Rete Gas SPA 2,846,933
632,706 Telecom Italia Mobile SPA (Savings Shares) 2,646,609
3,407,198 Telecom Italia SPA* 8,005,232
6,690,476 Telecom Italia SPA - RNC* 10,562,791
1,175,932 UniCredito Italiano SPA 5,461,166
--------------
101,662,362
--------------
JAPAN -- 18.1%
463,000 Aeon Co Ltd 11,448,020
531,400 Aisin Seiki Co Ltd 7,642,177
521,000 Ajinomoto Co Inc 5,130,519
283,000 Alps Electric Co Ltd 4,812,067
229,383 Arisawa Manufacturing 7,667,070
238,200 Bandai Co 10,227,820
649,000 Bank of Fukuoka Ltd 2,336,133
889,000 Canon Inc 42,743,315
842,500 Chubu Electric Power Co Inc 15,343,782
72,400 Credit Saison Co 1,253,411
943,000 Daikin Industries Ltd 18,022,712
1,088,000 Daimaru Inc 5,454,919
845,900 Denso Corp 15,804,439
2,098 East Japan Railway Co 8,864,535
186,000 Fuji Photo Film Co Ltd 5,579,362
1,035,300 Honda Motor Co Ltd 42,146,683
2,136,000 Itochu Corp 6,407,268
625,800 JFE Holdings Inc 12,603,960
922,000 Kao Corp 17,384,299
3,576 KDDI Corp 18,296,812
1,451,000 Konica Minolta Holdings Inc 19,884,719
94,800 Kose Corp 2,989,921
147,700 Kyocera Corp 9,493,915
1,894,000 Mitsubishi Corp 16,005,177
3,879,000 Mitsubishi Electric Corp 15,924,246
1,020,000 Mitsubishi Rayon Co Ltd 3,243,229
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
JAPAN -- CONTINUED
1,556 Mitsubishi Tokyo Finance Group Inc 9,068,221
683,000 Mitsui Fudosan Co Ltd 5,508,253
440,000 Mitsui Mining & Smelting Co Ltd 1,478,231
984,000 Mitsui OSK Lines Ltd 3,415,495
33,800 NEC Electronics Corp* 2,291,378
612,000 Nippon Oil Corp 2,417,998
2,105,600 Nissan Motor Co 22,611,560
176,800 Nissin Food Products 3,735,105
1,045,000 NTN Corp 5,024,383
6,330 NTT Docomo Inc 16,275,283
459,200 Omron Corp 9,346,932
90,800 ORIX Corp 6,031,025
830,000 Ricoh Company Ltd 15,293,966
158,200 Rinnai Corp 3,633,665
121,000 Seiko Epson Corp* 3,266,627
316,000 Seino Transportation Co Ltd 1,776,620
300,000 Sekisui House Ltd 2,635,413
380,000 Sharp Corp 5,699,349
359,000 Shiseido Co Ltd 3,756,762
432,700 Showa Corp 4,016,233
1,089,000 Sumitomo Trust & Banking 4,909,273
571,000 Takeda Chemical Industries Ltd 20,651,526
381,600 Tokyo Broadcasting System Inc 5,854,165
2,204,000 Tokyo Gas Co 6,705,691
224,640 Tostem Inax Holding Corp 3,638,752
495,000 Ushio Inc 7,330,819
1,237 West Japan Railway Co 4,293,666
384,500 Yamaha Corp 6,333,639
191,000 Yamanouchi Pharmaceutical Co Ltd 5,009,085
474,000 Yamato Transport Co Ltd 5,642,664
--------------
524,362,289
--------------
MALAYSIA -- 0.2%
750,000 Malaysian International Shipping (Foreign Registered) 1,963,816
1,659,000 Maxis Communications Berhad 2,815,934
--------------
4,779,750
--------------
MEXICO -- 0.3%
286,000 Coca-Cola Femsa SA ADR* 6,191,900
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
MEXICO -- CONTINUED
3,260,000 Grupo Financiero BBVA Bancomer SA* 2,647,476
--------------
8,839,376
--------------
NETHERLANDS -- 3.9%
443,270 Aegon NV 5,489,594
262,902 Akzo Nobel NV 8,618,794
215,750 Fortis NV 3,628,878
21,808 Fugro NV 1,137,293
229,612 Hagemeyer NV 834,421
139,274 Hal Trust (Participating Units) 2,974,079
849,583 ING Groep NV 16,565,767
183,313 Koninklijke Ahold NV* 1,730,830
82,120 Koninklijke BAM Groep NV 1,722,047
1,242,032 Koninklijke Philips Electronics NV 30,272,518
92,391 Koninklijke Philips Electronics NV ADR 2,254,340
399,544 Koninklijke Vendex KBB NV 4,522,578
95,331 Koninklijke Wessanen NV 833,125
214,320 Laurus NV* 315,305
271,670 Royal Dutch Petroleum 12,124,533
356,000 Royal KPN NV* 2,466,279
107,152 TPG NV 1,999,917
81,923 Unilever NV 4,560,123
35,634 Univar NV 354,842
220,319 VNU NV 6,845,437
98,510 Vopak NV 1,274,056
149,610 Wegener NV* 1,100,521
48,387 Wereldhave NV 2,820,889
--------------
114,446,166
--------------
NEW ZEALAND -- 0.9%
1,972,386 Air New Zealand, Class B* 580,515
6,194,177 Carter Holt Harvey Ltd 6,148,414
6,191,247 Telecom Corp of New Zealand 18,043,492
8,100,237 Trans Tasman Properties Ltd* 1,449,140
--------------
26,221,561
--------------
NORWAY -- 2.6%
679,400 Ekornes ASA 10,241,551
783,410 Norske Skogindustrier ASA, Class A 14,004,114
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
NORWAY -- CONTINUED
921,220 Prosafe ASA 15,484,445
532,030 Smedvig ASA, Class A 3,655,149
252,000 Smedvig ASA, Class B 1,428,733
3,429,220 Statoil ASA 30,878,831
--------------
75,692,823
--------------
SINGAPORE -- 1.0%
4,083,940 Allgreen Properties Ltd 2,353,117
1,797,580 DBS Group Holdings Ltd 12,921,164
7,198,000 MobileOne Ltd 5,666,747
968,450 Singapore Land Ltd 2,143,640
6,065,000 Singapore Post Ltd 2,664,185
6,770,320 SMRT Corp Ltd 2,220,853
--------------
27,969,706
--------------
SOUTH AFRICA -- 0.4%
303,500 Allied Technologies Ltd 1,126,221
686,410 Liberty Group Ltd 4,654,103
2,088,861 Old Mutual Plc 3,148,965
302,339 Western Areas Ltd* 1,979,846
--------------
10,909,135
--------------
SOUTH KOREA -- 1.2%
19,865 Hansol Paper Co 113,803
289,650 Korea Electric Power Corp 4,744,532
1,221,300 KT Corp ADR 23,021,505
226,000 Samsung Corp 1,630,384
14,940 Samsung Electronics 5,515,722
--------------
35,025,946
--------------
SPAIN -- 4.8%
118,370 ACS Actividades Cons y Serv 4,960,513
343,360 Altadis SA 8,104,961
890,000 Amadeus Global Travel Distribution 5,960,499
1,312,192 Banco Bilbao Vizcaya Argentaria SA 14,046,392
120,470 Banco Popular Espanol 5,422,825
1,533,132 Banco Santander Central Hispano SA 13,078,663
1,038,318 Endesa SA 16,164,765
</Table>
See accompanying notes to the financial statements. 9
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
SPAIN -- CONTINUED
288,400 Gas Natural SDG SA 5,341,622
996,733 Iberdrola SA 16,939,968
141,650 Red Electrica de Espana 1,749,572
918,529 Repsol YPF SA 15,510,007
2,209,922 Telefonica SA 26,009,650
114,877 Transportes Azkar SA 678,544
252,390 Union Fenosa SA 3,951,431
--------------
137,919,412
--------------
SWEDEN -- 2.1%
524,490 Autoliv Inc SDR 15,713,623
1,387,300 Billerud AB 17,421,722
1,214,700 Electrolux AB 27,094,382
--------------
60,229,727
--------------
SWITZERLAND -- 2.8%
184,880 ABB Ltd* 1,054,722
1,440 Bank Sarasin & Cie AG 1,850,701
2,822 Banque Cantonale Vaudoise* 197,362
2,516 Belimo Holding AG 817,379
20,030 Bobst Group AG (Registered) 614,966
41,300 Converium Holding AG 1,859,245
197,568 Credit Suisse Group 6,171,575
8,315 Energiedienst Holding AG 1,929,510
1,905 Fischer (George) AG (Registered)* 234,971
5,777 Forbo Holdings AG (Registered)* 1,546,803
10,798 Geberit AG 3,700,718
114,775 Holcim Ltd 4,548,222
740 Jelmoli Holding AG (Bearer) 512,513
4,406 Jelmoli Holding AG (Registered) 616,598
27,999 Lonza Group AG 1,373,411
59,970 Nestle SA 13,059,762
236,370 Novartis AG 8,691,625
504 Schweizerische National-Versicherungs-Gesellschaft 169,134
5,020 SGS Societe Generale Surveillance Holdings SA
(Registered) 2,379,979
1,674 Sulzer AG (Registered) 345,426
113,486 Swiss Reinsurance Co 6,968,545
30,390 Swisscom AG 8,310,571
58,200 UBS AG 3,139,488
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
SWITZERLAND -- CONTINUED
33,330 Unique Zurich Airport* 1,174,421
16,621 Valora Holding AG 3,204,220
55,021 Zurich Financial Services AG* 7,071,351
--------------
81,543,218
--------------
TAIWAN -- 0.7%
347,800 Chunghwa Telecom Co Ltd ADR 4,910,936
456,412 Compal Electronics ADR 144A 3,436,782
646,070 Standard Foods Ltd 158,879
1,973,863 Taiwan Cement Corp 728,107
9,160,160 United Microelectronics Corp* 7,508,767
546,988 United Microelectronics Corp ADR* 2,718,530
--------------
19,462,001
--------------
THAILAND -- 0.5%
800,000 Banpu Pcl (Foreign Registered)(a) 1,080,555
1,248,600 PTT Exploration & Production Pcl (Foreign
Registered)(a) 4,801,139
1,154,000 Siam Cement Pcl (Foreign Registered) 5,279,922
813,500 Siam Cement Pcl (Foreign Registered) NVDR 3,365,661
--------------
14,527,277
--------------
UNITED KINGDOM -- 17.5%
1,021,888 Abbey National Plc 8,518,277
2,940,000 Aggregate Industries Plc 4,231,814
1,419,591 Allied Domecq Plc 8,538,278
362,539 Amersham Plc 2,924,575
258,200 AstraZeneca Plc 9,924,311
1,342,906 Aviva Plc 10,652,570
162,472 AWG Plc* 1,354,338
707,428 BAA Plc 5,102,523
4,920,510 BAE Systems Plc 13,289,501
3,306,426 Barclays Plc 24,057,721
500,000 BBA Group Plc 1,977,187
136,043 Berkeley Group Plc 1,914,080
1,321,746 BG Group Plc 5,702,307
330,747 BHP Billiton Plc 2,173,726
501,790 Boots Group Plc 5,246,399
2,889,188 BP Plc 19,605,185
364,833 BPB Plc 1,850,967
</Table>
See accompanying notes to the financial statements. 11
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
501,600 British Energy Plc (Deferred Shares)*(a) --
813,876 British Sky Broadcasting Plc* 8,522,246
4,302,701 BT Group Plc 12,522,667
473,920 Bunzl Co 3,448,266
398,200 Cadbury Schweppes Plc 2,406,038
4,016,964 Centrica Plc 11,293,938
1,398,372 Diageo Plc 14,996,512
683,822 Dixons Group Plc (New Shares) 1,489,953
518,898 FKI Plc 935,674
1,025,385 Gallaher Group Plc 9,033,998
1,401,693 GlaxoSmithKline Plc 26,760,734
594,989 GUS Plc 6,437,287
455,358 Hanson Plc 2,971,083
1,000,000 Hays Plc 1,819,012
1,866,534 HBOS Plc 20,784,827
647,192 Hilton Group Plc 1,991,089
1,620,134 HSBC Holdings Plc 20,834,320
635,893 Imperial Chemical Industries Plc 1,951,298
748,518 Imperial Tobacco Group Plc 11,697,607
215,516 Intercontinental Hotels Group Plc* 1,666,964
1,084,940 International Power Plc* 2,574,156
1,270,000 John Wood Group Plc 3,696,233
206,570 Johnson Matthey Plc 3,206,974
283,803 Kesa Electricals Plc* 1,003,304
605,273 Kidde Plc 928,669
1,241,639 Kingfisher Plc 5,341,978
4,914,644 Legal & General Group Plc 7,734,869
2,460,120 Lloyds TSB Group Plc 16,148,873
59,438 Lonmin Plc 874,819
318,669 Marks & Spencer Group Plc 1,534,847
790,000 Matalan Plc 2,624,123
215,516 Mitchells & Butlers Plc* 859,049
1,612,501 mmO2 Plc* 1,351,804
1,350,044 National Grid Transco Plc 8,269,461
240,000 Next Plc 4,084,711
377,000 Pearson Plc 3,685,256
1,040,717 Peninsular & Oriental Steam Navigation Co 4,234,731
892,023 Prudential Plc 6,158,829
328,240 Rank Group Plc 1,473,212
218,690 Reed Elsevier Plc 1,677,678
</Table>
12 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
3,044,020 Rentokil Initial Plc 10,111,245
464,669 Reuters Group Plc 1,819,101
517,200 Rexam Plc 3,352,087
125,441 RMC Group Plc 1,101,706
874,703 Royal Bank of Scotland Group 21,777,258
1,035,000 SABMiller Plc 7,739,443
984,683 Sainsbury (J) Plc 4,294,868
521,421 Scottish & Newcastle Plc 3,101,089
458,960 Scottish & Southern Energy Plc 4,573,548
842,000 Scottish Power Plc 4,824,567
612,863 Severn Trent Plc 6,204,135
3,598,750 Shell Transport & Trading Co Plc (Registered) 22,570,060
412,160 Smith (David S.) Holdings Plc 1,043,095
140,434 Standard Chartered Plc 1,879,232
226,228 TI Automotive Ltd*(a) --
939,546 Tomkins Plc 3,904,798
328,447 Trinity Mirror Plc 2,722,290
689,632 Unilever Plc 5,612,297
350,384 United Utilities Plc 2,585,436
395,980 Viridian Group Plc 3,282,029
11,668,273 Vodafone Group Plc 21,363,157
240,354 Whitbread Plc 2,838,043
453,176 Wolseley Plc 5,196,881
--------------
507,987,213
--------------
TOTAL COMMON STOCKS (COST $2,437,811,668) 2,674,778,654
--------------
PREFERRED STOCKS -- 1.5%
BRAZIL -- 0.1%
115,193 Gerdau SA 1,726,144
--------------
FRANCE -- 0.1%
19,758 Casino Guichard Perrachon SA 3.74% 1,287,439
--------------
GERMANY -- 1.2%
378,160 Bayerische Motoren Werke AG 2.41% 10,130,437
192,904 Rheinmetall AG (Non Voting) 3.92% 4,339,563
53,890 Villeroy & Boch AG (Non Voting) 5.78% 417,119
</Table>
See accompanying notes to the financial statements. 13
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
GERMANY -- CONTINUED
612,349 Volkswagen AG 5.30% 20,303,399
--------------
35,190,518
--------------
ITALY -- 0.0%
155,433 Fiat SPA 4.95%* 629,698
57,871 IFI Istituto Finanziario Industries 4.82%* 397,739
--------------
1,027,437
--------------
THAILAND -- 0.1%
2,954,080 Siam Commercial Bank Ltd* 2,803,824
--------------
TOTAL PREFERRED STOCKS (COST $35,900,250) 42,035,362
--------------
CONVERTIBLE SECURITIES -- 1.1%
JAPAN -- 1.1%
JPY 456,000,000 Internet Initiative Japan Inc, 144A, 1.75%, due
03/31/05 3,321,906
JPY 2,181,000,000 SMFG Finance 144A, 2.25%, due 07/11/05 25,389,921
JPY 192,000,000 SMFG Finance Reg S, 2.25%, due 07/11/05 2,235,151
--------------
30,946,978
--------------
TOTAL CONVERTIBLE SECURITIES (COST $23,756,017) 30,946,978
--------------
DEBT OBLIGATIONS -- 0.0%
UNITED KINGDOM -- 0.0%
GBP 35,888 BAE Systems Plc, 7.45%, due 11/30/03 10,785
GBP 102,000 BG Transco Holdings Plc Index Linked, 4.186%, due
12/14/22 186,410
GBP 102,000 BG Transco Holdings Plc, 4.98%, Variable Rate, due
12/14/09 161,440
GBP 102,000 BG Transco Holdings Plc, 7.00%, due 12/16/24 182,866
--------------
541,501
--------------
TOTAL DEBT OBLIGATIONS (COST $395,369) 541,501
--------------
</Table>
See accompanying notes to the financial statements.
14
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------
RIGHTS AND WARRANTS -- 0.0%
UNITED KINGDOM -- 0.0%
194,657 United Utilities Plc Rights, Expires 9/18/03* 330,991
--------------
TOTAL RIGHTS AND WARRANTS (COST $481,788) 330,991
--------------
SHORT-TERM INVESTMENTS -- 4.9%
CASH EQUIVALENTS -- 4.9%
USD 88,969,256 The Boston Global Investment Trust(b) 88,969,256
USD 53,400,000 Wachovia GC Time Deposit, 1.00%, due 9/02/03 53,400,000
--------------
142,369,256
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $142,369,256) 142,369,256
--------------
TOTAL INVESTMENTS -- 99.6%
(Cost $2,640,714,348) 2,891,002,742
Other Assets and Liabilities (net) -- 0.4% 12,463,824
--------------
TOTAL NET ASSETS -- 100.0% $2,903,466,566
==============
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
<Table>
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
ADR - American Depositary Receipt
GDR - Global Depository Receipt
NVDR - Non-Voting Depository Receipt
SDR - Swedish Depository Receipt
</Table>
* Non-income producing security.
See accompanying notes to the financial statements.
15
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
+ Direct placement securities are restricted as to resale. They have been
valued at fair value by the Trustees after consideration of
restricitions as to resale, financial condition and prospects of the
issuer, general market conditions, and pertinent information in
accordance with the Fund's Prospectus and the Investment Company Act of
1940, as amended. The Fund has limited rights to registration under the
Securities Act of 1933 with respect to those restricted securities.
(a) Security valued at fair value using methods determined in good faith by
or at the direction of the Trustees (Note 1).
(b) Represents investment of security lending collateral (Note 1).
<Table>
<Caption>
CURRENCY ABBREVIATIONS:
GBP - British Pound
JPY - Japanese Yen
USD - United States Dollar
</Table>
Additional information on each restricted security is as
follows:
<Table>
<Caption>
MARKET
VALUE AS A
PERCENTAGE MARKET
ACQUISITION ACQUISITION OF FUND'S VALUE AS OF
ISSUER, DESCRIPTION DATE COST NET ASSETS AUGUST 31, 2003
- ----------------------------------------------------------------------------------------------------
Lihir Gold Ltd ADR 144A 10/07/99 $ 1,454,640 0.05% $ 1,451,600
</Table>
16 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
AUGUST 31, 2003 (UNAUDITED)
At August 31, 2003, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
- --------------------------------------------------------------------
Financials 22.5%
Consumer Discretionary 18.2
Industrials 10.6
Telecommunication Services 9.4
Materials 8.5
Energy 7.6
Consumer Staples 7.3
Information Technology 6.4
Utilities 6.2
Health Care 3.3
-----
100.0%
=====
</Table>
See accompanying notes to the financial statements. 17
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value, including securities on loan of
$83,758,487 (cost $2,640,714,348) (Note 1) $2,891,002,742
Cash 76,466
Foreign currency, at value (cost $96,581,150) (Note 1) 94,338,607
Receivable for investments sold 6,939,724
Receivable for Fund shares sold 7,706,543
Dividends and interest receivable 6,341,431
Foreign taxes receivable 945,461
Receivable for expenses reimbursed by Manager (Note 2) 176,700
--------------
Total assets 3,007,527,674
--------------
LIABILITIES:
Payable for investments purchased 12,892,278
Payable upon return of securities loaned (Note 1) 88,969,256
Payable for Fund shares repurchased 166,320
Payable to affiliate for (Note 2):
Management fee 1,445,970
Shareholder service fee 377,395
12b-1 fee - Class M 3,544
Administration fee - Class M 1,396
Accrued expenses 204,949
--------------
Total liabilities 104,061,108
--------------
NET ASSETS $2,903,466,566
==============
NET ASSETS CONSIST OF:
Paid-in capital $2,716,644,072
Accumulated undistributed net investment income 37,071,780
Accumulated net realized loss (98,205,359)
Net unrealized appreciation 247,956,073
--------------
$2,903,466,566
==============
NET ASSETS ATTRIBUTABLE TO:
Class II shares $ 532,413,288
==============
Class III shares $2,084,628,288
==============
Class IV shares $ 275,566,907
==============
Class M shares $ 10,858,083
==============
SHARES OUTSTANDING:
Class II 49,210,224
==============
Class III 192,100,798
==============
Class IV 25,386,024
==============
Class M 1,007,051
==============
NET ASSET VALUE PER SHARE:
Class II $ 10.82
==============
Class III $ 10.85
==============
Class IV $ 10.86
==============
Class M $ 10.78
==============
</Table>
18 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $5,426,874) $ 45,500,194
Interest (including securities lending income of
$1,080,656) 2,484,647
------------
Total income 47,984,841
------------
EXPENSES:
Management fee (Note 2) 7,159,549
Custodian fees 689,444
Legal fees 41,400
Transfer agent fees 36,800
Audit fees 30,452
Trustees fees and related expenses (Note 2) 23,064
Registration fees 19,780
Miscellaneous 17,848
Fees reimbursed by Manager (Note 2) (835,264)
------------
7,183,073
Shareholder service fee (Note 2) - Class II 475,823
Shareholder service fee (Note 2) - Class III 1,281,726
Shareholder service fee (Note 2) - Class IV 107,356
------------
1,864,905
------------
12b-1 fee (Note 2) - Class M 7,977
------------
Administration fee (Note 2) - Class M 6,383
------------
Net expenses 9,062,338
------------
Net investment income 38,922,503
------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (18,705,309)
Foreign currency, forward contracts and foreign
currency related transactions 1,942,889
------------
Net realized loss (16,762,420)
------------
Change in net unrealized appreciation (depreciation) on:
Investments 458,220,861
Foreign currency, forward contracts and foreign
currency related transactions (2,541,027)
------------
Net unrealized gain 455,679,834
------------
Net realized and unrealized gain 438,917,414
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $477,839,917
============
</Table>
See accompanying notes to the financial statements.
19
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 38,922,503 $ 26,594,966
Net realized loss (16,762,420) (29,666,452)
Change in net unrealized appreciation (depreciation) 455,679,834 (151,205,766)
-------------- --------------
Net increase (decrease) in net assets from
operations 477,839,917 (154,277,252)
-------------- --------------
Distributions to shareholders from:
Net investment income
Class II (4,145,518) (3,740,934)
Class III (15,574,467) (21,554,280)
Class IV (2,056,434) (4,218,845)
Class M (69,593) (48,153)
-------------- --------------
Total distributions from net investment income (21,846,012) (29,562,212)
-------------- --------------
(21,846,012) (29,562,212)
-------------- --------------
Net share transactions (Note 4):
Class II 145,101,224 230,185,805
Class III 516,520,343 320,862,731
Class IV 21,400,558 103,451,466
Class M 5,160,160 4,689,233
-------------- --------------
Increase in net assets resulting from net share
transactions 688,182,285 659,189,235
-------------- --------------
Total increase in net assets 1,144,176,190 475,349,771
NET ASSETS:
Beginning of period 1,759,290,376 1,283,940,605
-------------- --------------
End of period (including accumulated undistributed
net investment income of $37,071,780 and
$19,995,289, respectively) $2,903,466,566 $1,759,290,376
============== ==============
</Table>
20 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 -------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.88 $ 9.94 $ 11.21 $ 13.14 $ 11.79 $ 12.09
-------- -------- -------- -------- ------- -------
Income from investment operations:
Net investment income(b) 0.16 0.15 0.16 0.20 0.17 0.20
Net realized and unrealized gain
(loss) 1.86 (1.03) (1.20) (0.41) 2.89 (0.14)
-------- -------- -------- -------- ------- -------
Total from investment operations 2.02 (0.88) (1.04) (0.21) 3.06 0.06
-------- -------- -------- -------- ------- -------
Less distributions to shareholders:
From net investment income (0.08) (0.18) (0.11) (0.29) (0.21) (0.25)
From net realized gains -- -- (0.12) (1.43) (1.50) (0.11)
-------- -------- -------- -------- ------- -------
Total distributions (0.08) (0.18) (0.23) (1.72) (1.71) (0.36)
-------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.82 $ 8.88 $ 9.94 $ 11.21 $ 13.14 $ 11.79
======== ======== ======== ======== ======= =======
TOTAL RETURN(a) 22.81%** (9.00)% (9.37)% (1.84)% 25.63% 0.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $532,413 $305,423 $100,127 $ 61,681 $60,278 $33,780
Net expenses to average daily net
assets 0.82%* 0.82% 0.82% 0.82% 0.82% 0.82%
Net investment income to average
daily net assets 3.17%* 1.54% 1.56% 1.63% 1.28% 1.64%
Portfolio turnover rate 10%** 22% 22% 38% 35% 27%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.07%* 0.09% 0.09% 0.09% 0.10% 0.25%
</Table>
* Annualized.
** Not Annualized.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 21
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ------------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ------------ ------------ ------------ ------------ ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.90 $ 9.95 $ 11.22 $ 13.16 $ 11.81 $ 12.10
---------- ---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income(b) 0.16 0.17 0.19 0.21 0.20 0.20
Net realized and unrealized gain
(loss) 1.87 (1.04) (1.23) (0.43) 2.86 (0.12)
---------- ---------- ---------- ---------- ---------- --------
Total from investment operations 2.03 (0.87) (1.04) (0.22) 3.06 0.08
---------- ---------- ---------- ---------- ---------- --------
Less distributions to shareholders:
From net investment income (0.08) (0.18) (0.11) (0.29) (0.21) (0.26)
From net realized gains -- -- (0.12) (1.43) (1.50) (0.11)
---------- ---------- ---------- ---------- ---------- --------
Total distributions (0.08) (0.18) (0.23) (1.72) (1.71) (0.37)
---------- ---------- ---------- ---------- ---------- --------
NET ASSET VALUE, END OF PERIOD $ 10.85 $ 8.90 $ 9.95 $ 11.22 $ 13.16 $ 11.81
========== ========== ========== ========== ========== ========
TOTAL RETURN(a) 22.87%** (8.89)% (9.33)% (1.85)% 25.65% 0.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $2,084,628 $1,241,562 $1,049,456 $1,019,541 $1,022,498 $927,108
Net expenses to average daily net
assets 0.75%* 0.75% 0.75% 0.75% 0.75% 0.75%
Net investment income to average
daily net assets 3.27%* 1.77% 1.88% 1.71% 1.48% 1.60%
Portfolio turnover rate 10%** 22% 22% 38% 35% 27%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.07%* 0.09% 0.09% 0.09% 0.10% 0.25%
</Table>
* Annualized.
** Not Annualized.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) Computed using average shares outstanding throughout the period.
22 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.90 $ 9.96 $ 11.22 $ 13.16 $ 11.81 $ 12.11
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(b) 0.17 0.18 0.20 0.22 0.21 0.22
Net realized and unrealized gain
(loss) 1.87 (1.05) (1.22) (0.43) 2.86 (0.15)
-------- -------- -------- -------- -------- --------
Total from investment operations 2.04 (0.87) (1.02) (0.21) 3.07 0.07
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.08) (0.19) (0.12) (0.30) (0.22) (0.26)
From net realized gains -- -- (0.12) (1.43) (1.50) (0.11)
-------- -------- -------- -------- -------- --------
Total distributions (0.08) (0.19) (0.24) (1.73) (1.72) (0.37)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.86 $ 8.90 $ 9.96 $ 11.22 $ 13.16 $ 11.81
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) 23.00%** (8.92)% (9.19)% (1.79)% 25.74% 0.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $275,567 $207,858 $134,357 $144,425 $141,175 $130,760
Net expenses to average daily net
assets 0.69%* 0.69% 0.69% 0.69% 0.69% 0.69%
Net investment income to average
daily net assets 3.40%* 1.79% 1.97% 1.77% 1.55% 1.81%
Portfolio turnover rate 10%** 22% 22% 38% 35% 27%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.07%* 0.09% 0.09% 0.09% 0.10% 0.25%
</Table>
* Annualized.
** Not Annualized.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 23
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS M SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED
FEBRUARY
28/29,
SIX MONTHS ENDED ----------------------
AUGUST 31, 2003 2003 2002+
---------------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.86 $ 9.93 $ 9.85
------- ------ ----------
Income from investment operations:
Net investment income(b) 0.14 0.05 0.00(c)
Net realized and unrealized gain (loss) 1.86 (0.93) 0.08
------- ------ ----------
Total from investment operations 2.00 (0.88) 0.08
------- ------ ----------
Less distributions to shareholders:
From net investment income (0.08) (0.19) --
------- ------ ----------
Total distributions (0.08) (0.19) --
------- ------ ----------
NET ASSET VALUE, END OF PERIOD $ 10.78 $ 8.86 $ 9.93
======= ====== ==========
TOTAL RETURN(a) 22.62%** (9.09)% 0.81%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $10,858 $4,449 $ 1
Net expenses to average daily net assets 1.06%* 1.06% 1.05%*
Net investment income to average daily net
assets 2.82%* 0.55% 0.35%*
Portfolio turnover rate 10%** 22% 22%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.07%* 0.10% 0.09%*
</Table>
+ Period from January 25, 2002 (commencement of operations) to February
28, 2002.
* Annualized.
** Not Annualized.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) Computed using average shares outstanding throughout the period.
(c) Net investment income earned was less than $.01 per share.
24 See accompanying notes to the financial statements.
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Foreign Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended,
as an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on June 24,
1985. The Declaration of Trust permits the Trustees to create an unlimited
number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series of shares into classes.
The Fund seeks high total return through investment in equity securities
of non-U.S. issuers. The Fund's benchmark is the MSCI EAFE Index (Europe,
Australasia, and Far East).
Throughout the six months ended August 31, 2003, 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 2). The principal economic
difference among the classes of shares is the level of fees borne by the
classes. Eligibility for and automatic conversion among the various
classes of shares, except Class M, is generally based on the total amount
of assets invested in a particular fund or with GMO, as more fully
outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of mutual funds are valued at their net asset value as reported on
each business day. 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
25
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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. There were no forward foreign currency contracts
outstanding as of August 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.
26
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. As of August 31,
2003, there were no outstanding futures contracts.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
27
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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 the price of the security or index underlying these
transactions. At August 31, 2003, there were no open swap agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the
28
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
investment of the collateral, the risk of delay in recovery or loss of
rights in the collateral should the borrower of the securities fail
financially. The Fund receives compensation for lending its securities. At
August 31, 2003, the Fund loaned securities having a market value of
$83,758,487, collateralized by cash in the amount of $88,969,256, which
was invested in a short-term instrument.
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 carryover for
U.S. federal income tax purposes. Therefore, no provision for U.S. federal
income or excise tax is necessary. Taxes on foreign interest and dividend
income 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ 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.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code of $23,898,414 and $17,460,238 expiring in 2010 and 2011,
respectively. The Fund has elected to defer to March 1, 2003 post-October
capital losses of $38,136,022.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the
29
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
amortization of premiums and discounts. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. Investment
income, common expenses and realized and unrealized gains and losses are
allocated pro-rata among the classes of shares of the Fund based on the
relative net assets of each class. Shareholder service, 12b-1, and
administration fees, which are directly attributable to a class of shares,
are charged to that class' operations.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .60% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .22%
for Class II shares, .15% for Class III shares and .09% for Class IV
shares.
The Class M shares of the Fund pays GMO an administration fee monthly at
the annual rate of .20% of average daily Class M net assets for support
services provided to Class M shareholders.
Fund Distributors, Inc. (the "Distributor") serves as the Fund's
distributor. Pursuant to a Rule 12b-1 distribution plan adopted by the
Fund, Class M shares of the Fund pay a fee, at the annual rate of 0.25% of
average daily Class M net assets for any activities or expenses primarily
intended to result in the sale of Class M shares of the Fund. This fee may
be spent by the Distributor on personal services rendered to Class M
shareholders of the Fund and/or maintenance of Class M shareholder
accounts.
30
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees (Class II,
Class III and Class IV only), administration fees (Class M only), 12b-1
fees (Class M only), fees and expenses of the independent Trustees of the
Trust (including legal fees), brokerage commissions and other
investment-related costs, hedging transaction fees, extraordinary, non-
recurring and certain other unusual expenses (including taxes), securities
lending fees and expenses, interest expense and transfer taxes) exceed the
management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $16,992. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003
aggregated $916,357,812 and $223,355,689, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$2,645,010,804 $348,692,786 $(102,700,848) $245,991,938
</Table>
4. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ -------------------------
Shares Amount Shares Amount
Class II: ---------- ------------ ----------- ------------
Shares sold 19,043,154 $189,145,673 26,662,327 $252,786,694
Shares issued to shareholders in reinvestment
of distributions 347,776 3,637,741 330,624 3,216,043
Shares repurchased (4,576,200) (47,682,190) (2,675,281) (25,816,932)
---------- ------------ ----------- ------------
Net increase 14,814,730 $145,101,224 24,317,670 $230,185,805
========== ============ =========== ============
</Table>
31
<Page>
GMO FOREIGN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ -------------------------
Shares Amount Shares Amount
Class III: ---------- ------------ ----------- ------------
Shares sold 54,725,212 $537,194,739 50,940,076 $493,560,075
Shares issued to shareholders in reinvestment
of distributions 1,058,383 11,102,441 1,230,614 12,079,797
Shares repurchased (3,133,235) (31,776,837) (18,151,641) (184,777,141)
---------- ------------ ----------- ------------
Net increase 52,650,360 $516,520,343 34,019,049 $320,862,731
========== ============ =========== ============
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ -------------------------
Shares Amount Shares Amount
Class IV: ---------- ------------ ----------- ------------
Shares sold 1,938,124 $ 20,297,017 9,587,705 $100,892,832
Shares issued to shareholders in reinvestment
of distributions 121,882 1,278,541 272,027 2,678,839
Shares repurchased (17,641) (175,000) (11,514) (120,205)
---------- ------------ ----------- ------------
Net increase 2,042,365 $ 21,400,558 9,848,218 $103,451,466
========== ============ =========== ============
<Caption>
Six Months Ended Year Ended
August 31, 2003 February 28, 2003
------------------------ -------------------------
Shares Amount Shares Amount
Class M: ---------- ------------ ----------- ------------
Shares sold 2,065,340 $ 20,980,814 561,276 $ 5,236,694
Shares issued to shareholders in reinvestment
of distributions 6,672 69,593 5,216 48,153
Shares repurchased (1,567,056) (15,890,247) (64,484) (595,614)
---------- ------------ ----------- ------------
Net increase 504,956 $ 5,160,160 502,008 $ 4,689,233
========== ============ =========== ============
</Table>
32
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------
DEBT OBLIGATIONS -- 27.1%
ALBANIA -- 1.3%
USD 15,681,227 Republic of Albania Par Bond, Zero Coupon, 0.00%,
due 08/31/25 4,704,368
------------
AUSTRIA -- 1.6%
GBP 500,000 Bank Austria AG Series EMTN, 8.38%, due 11/04/11 945,966
USD 4,175,000 Bank Austria AG, 144A, 7.25%, due 02/15/17 4,821,290
------------
5,767,256
------------
BRAZIL -- 0.8%
USD 10,000,000 Brazil Discount Bond, Principal Strip, Series D1A,
Zero Coupon, 0.00%, due 04/15/24(a) 2,758,949
------------
CAYMAN ISLANDS -- 0.9%
CAD 4,000,000 Government of Canada (Cayman), 7.25%, due 06/01/08 3,223,876
------------
CHILE -- 0.2%
USD 750,000 Banco Santander Series MBIA, 6.50%, due 11/01/05 800,959
------------
LUXEMBOURG -- 2.3%
USD 8,000,000 Tyco International Group SA, 5.80%, due 08/01/06 8,140,000
------------
MEXICO -- 0.9%
USD 3,000,000 Pemex Finance Ltd, AMBAC, 6.30%, due 05/15/10 3,225,000
------------
UNITED STATES -- 19.1%
CORPORATE DEBT -- 2.6%
USD 5,000,000 Target Corp, 4.00%, due 06/15/13 4,565,000
USD 5,000,000 Verizon Global Funding Corp, 4.38%, due 06/01/13 4,600,400
------------
9,165,400
------------
U.S. GOVERNMENT -- 10.9%
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 02/15/10(a) 7,433,710
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 02/15/12(a) 6,474,769
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 08/15/12(a) 6,256,442
USD 17,054,400 U.S. Treasury Inflation Indexed Note, 3.63%, due
01/15/08(b) 18,773,165
------------
38,938,086
------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY -- 5.6%
USD 20,000,000 Fannie Mae, TBA, 5.50%, due 09/01/33 19,868,750
------------
TOTAL UNITED STATES 67,972,236
------------
TOTAL DEBT OBLIGATIONS (COST $91,656,740) 96,592,644
------------
MUTUAL FUNDS -- 75.0%
1,551,663 GMO Alpha LIBOR Fund(c) 37,488,175
992,504 GMO Emerging Country Debt Fund, Class III 10,639,644
8,719,212 GMO Short-Duration Collateral Fund 219,811,347
------------
TOTAL MUTUAL FUNDS (COST $267,545,630) 267,939,166
------------
<Caption>
PRINCIPAL
AMOUNT
-------------
CALL OPTIONS PURCHASED -- 0.2%
CROSS CURRENCY OPTIONS -- 0.2%
GBP 18,300,000 GBP Call/JPY Put, Expires 01/23/04, Strike 184.00 604,704
------------
TOTAL CALL OPTIONS PURCHASED (COST $1,095,302) 604,704
------------
PUT OPTIONS PURCHASED -- 0.9%
CROSS CURRENCY OPTIONS -- 0.9%
EUR 97,300,000 EUR Put/USD Call, Expires 10/1/03, Strike 1.1150 2,886,499
GBP 37,600,000 GBP Put/USD Call, Expires 11/6/03, Strike 1.545 453,790
------------
3,340,289
------------
TOTAL PUT OPTIONS PURCHASED (COST $1,642,170) 3,340,289
------------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------
PREFERRED STOCKS -- 1.6%
UNITED STATES -- 1.6%
10,000 Home Ownership Funding 2 Preferred 144A, 13.338% 5,576,260
------------
TOTAL PREFERRED STOCKS (COST $5,920,784) 5,576,260
------------
SHORT-TERM INVESTMENTS -- 0.4%
CASH EQUIVALENTS -- 0.4%
USD 1,532,986 Merrimac Cash Fund 1,532,986
------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,532,986) 1,532,986
------------
TOTAL INVESTMENTS -- 105.2%
(Cost $369,393,612) 375,586,049
Other Assets and Liabilities (net) -- (5.2%) (18,415,844)
------------
TOTAL NET ASSETS -- 100.0% $357,170,205
============
</Table>
See accompanying notes to the financial statements.
3
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
<Table>
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
AMBAC - Insured as to the payment of principal and interest by
AMBAC Assurance Corporation
EMTN - Euromarket Medium Term Note
MBIA - Insured as to the payment of principal and interest by
MBIA Insurance Corp
TBA - To Be Announced (Note 1)
CURRENCY ABBREVIATIONS:
</Table>
<Table>
AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - British Pound
JPY - Japanese Yen
NOK - Norwegian Krone
NZD - New Zealand Dollars
SEK - Swedish Krona
USD - United States Dollar
</Table>
(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 has been segregated to cover margin
requirements on open financial futures contracts and open swap contracts
(Note 6).
(c) All or a portion of this security has been segregated to cover
collateral requirements on TBA obligations (Note 1).
4 See accompanying notes to the financial statements.
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $369,393,612) (Note 1) $375,586,049
Foreign currency, at value (cost $153,528) (Note 1) 124,228
Receivable for Fund shares sold 2,266,000
Interest receivable 664,933
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 1,002,725
Net receivable for open swap contracts (Notes 1 and 6) 1,529,457
Receivable for expenses reimbursed by Manager (Note 2) 21,546
------------
Total assets 381,194,938
------------
LIABILITIES:
Payable for investments purchased 1,000,000
Payable for forward commitment (Note 1) 20,003,125
Payable to affiliate for (Note 2):
Management fee 73,009
Shareholder service fee 43,805
Payable for open forward foreign currency contracts
(Notes 1 and 6) 1,025,760
Net payable for closed forward foreign currency exchange
contracts (Note 1) 1,447,659
Net payable for closed swap contracts (Notes 1 and 6) 220,322
Payable for variation margin on open futures contracts
(Notes 1 and 6) 161,028
Accrued expenses 50,025
------------
Total liabilities 24,024,733
------------
NET ASSETS $357,170,205
============
NET ASSETS CONSIST OF:
Paid-in capital $347,811,975
Distributions in excess of net investment income (1,329,018)
Accumulated net realized loss (665,826)
Net unrealized appreciation 11,353,074
------------
$357,170,205
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $357,170,205
============
SHARES OUTSTANDING:
Class III 35,494,460
============
NET ASSET VALUE PER SHARE:
Class III $ 10.06
============
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest $1,505,953
Dividends from investment company shares 1,083,655
----------
Total income 2,589,608
----------
EXPENSES:
Management fee (Note 2) 386,553
Custodian and transfer agent fees 62,532
Audit fees 23,736
Legal fees 7,820
Trustees fees and related expenses (Note 2) 3,322
Registration fees 2,852
Miscellaneous 2,578
Fees reimbursed by Manager (Note 2) (97,676)
----------
391,717
Indirectly incurred fees reimbursed by Manager (Note 2) (21,090)
----------
370,627
----------
Shareholder service fee (Note 2)
Class III 231,945
Shareholder service fee reimbursed (Note 2)
Class III (7,348)
----------
224,597
----------
Net expenses 595,224
----------
Net investment income 1,994,384
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (2,182,194)
Realized gains distributions from investment company
shares 269,553
Closed futures contracts (2,885,165)
Closed swap contracts 525,243
Written options 232,650
Foreign currency, forward contracts and foreign
currency related transactions 4,912,979
----------
Net realized gain 873,066
----------
Change in net unrealized appreciation (depreciation) on:
Investments 3,361,555
Open futures contracts 2,322,529
Open swap contracts 2,467,177
Foreign currency, forward contracts and foreign
currency related transactions (1,440,394)
----------
Net unrealized gain 6,710,867
----------
Net realized and unrealized gain 7,583,933
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $9,578,317
==========
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,994,384 $ 5,609,072
Net realized gain 873,066 2,466,284
Change in net unrealized appreciation (depreciation) 6,710,867 10,920,970
------------ ------------
Net increase in net assets from operations 9,578,317 18,996,326
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (282,200) (12,462,812)
------------ ------------
Total distributions from net investment income (282,200) (12,462,812)
------------ ------------
Net realized gains
Class III (7,149,059) (16,722,852)
------------ ------------
Total distributions from net realized gains (7,149,059) (16,722,852)
------------ ------------
(7,431,259) (29,185,664)
------------ ------------
Net share transactions (Note 5):
Class III 68,993,133 (43,819,811)
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions 68,993,133 (43,819,811)
------------ ------------
Total increase (decrease) in net assets 71,140,191 (54,009,149)
NET ASSETS:
Beginning of period 286,030,014 340,039,163
------------ ------------
End of period (including distributions in excess of
net investment income of $1,329,018 and $3,041,202,
respectively) $357,170,205 $286,030,014
============ ============
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ---------------------------------------------------------------
(UNAUDITED) 2003 2002 2001(D) 2000 1999
---------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.95 $ 10.39 $ 10.17 $ 9.64 $ 10.23 $ 10.60
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.07(a)+ 0.19(a)+ 0.77(a)+ 0.62(a)+ 0.62+ 0.64+
Net realized and unrealized gain
(loss) 0.28 0.45 0.07 0.73 (0.40) (0.58)
-------- -------- -------- -------- -------- --------
Total from investment operations 0.35 0.64 0.84 1.35 0.22 0.06
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.01) (0.47) (0.62) (0.82) (0.70) (0.12)
From net realized gains (0.23) (0.61) --(f) -- (0.11) (0.31)
-------- -------- -------- -------- -------- --------
Total distributions (0.24) (1.08) (0.62) (0.82) (0.81) (0.43)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.06 $ 9.95 $ 10.39 $ 10.17 $ 9.64 $ 10.23
======== ======== ======== ======== ======== ========
TOTAL RETURN(b) 3.45%** 6.45% 8.53% 14.52% 2.26% 0.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $357,170 $286,030 $340,039 $156,412 $120,276 $143,703
Net operating expenses to average
daily net assets 0.38%(e)* 0.38%(e) 0.38%(e) 0.39%(e) 0.40% 0.40%
Interest expense to average daily net
assets -- -- -- -- 0.01%(c) --
Total net expenses to average daily
net assets 0.38%* 0.38% 0.38% 0.39% 0.41% --
Net investment income to average
daily net assets 1.29%(e)* 1.85%(a) 7.39%(a) 6.34%(a) 6.19% 5.97%
Portfolio turnover rate 56%** 108% 113% 181% 40% 113%
Fees and expenses reimbursed by the
Manager to average daily net
assets: 0.08%* 0.09% 0.09% 0.12% 0.10% 0.25%
</Table>
(a) Net investment income is affected by the timing of the declaration of
dividends by other Funds of the Trust in which the Fund invests.
(b) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
(c) Interest expense incurred as a result of entering into reverse
repurchase agreements is included in the Fund's net expenses. Income
earned on investing proceeds from reverse repurchase agreements is
included in interest income.
(d) 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 for
the year ended February 28, 2001 was to decrease net investment income
per share by $0.04, increase net realized gains and losses per share by
$0.04, and decrease the ratio of net investment income to average net
assets from 6.70% to 6.34%. Per share and ratio/supplemental data for
periods prior to March 1, 2000 have not been restated to reflect this
change.
(e) Net expenses exclude expenses incurred indirectly through investment in
underlying funds. See Note 2.
(f) The distribution from net realized gains was less than $0.01 per share.
+ Calculated using average shares outstanding throughout the period.
* Annualized.
** Not Annualized.
8 See accompanying notes to the financial statements.
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Core Plus Bond Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund seeks a high total return through direct and indirect investment
in U.S. securities, with additional return sought through exposure to
foreign bond and currency markets. The Fund achieves U.S. bond market
exposure by investing in GMO Short-Duration Collateral Fund, "synthetic"
bonds (created by the Manager by combining a futures contract, swap
contract, or option, on a fixed income security with cash, a cash
equivalent or another fixed income (security) and/or directly in U.S.
Government securities and other high-quality U.S. dollar denominated fixed
income securities. Foreign bond exposure is achieved primarily through
investment in exchange-traded and over-the-counter foreign bond
derivatives. The Fund's benchmark is the Lehman Brothers U.S. Aggregate
Bond Index.
At August 31, 2003, 61.5% of the Fund was invested in the GMO
Short-Duration Collateral Fund and 10.5% of the Fund was invested in the
GMO Alpha LIBOR Fund, separate funds of GMO Trust managed by GMO. Shares
of the GMO Alpha LIBOR Fund and the GMO Short-Duration Collateral Fund are
not publicly available for direct purchase. At August 31, 2003, 3.0% of
the net assets of the Fund was invested in the GMO Emerging Country Debt
Fund, a separate fund of GMO Trust managed by GMO. The financial
statements of the GMO Alpha LIBOR Fund, the GMO Short-Duration Collateral
Fund and the GMO Emerging Country Debt Fund should be read in conjunction
with the Fund's financial statements.
In November 2002, certain bonds ("NPF bonds") held by GMO Alpha LIBOR Fund
("Alpha LIBOR Fund"), in which the Fund had significant investments,
defaulted amid allegations of fraud and significant violations of the
bonds' indentures. Currently, no market exists for the NPF bonds, and they
are being valued at fair value by the trustees of GMO Trust or persons
acting at their direction. The devaluation of the NPF bonds had a negative
impact on the Fund's net asset value per share.
In late November 2002, Alpha LIBOR Fund undertook a reorganization
transaction with a new series of GMO Trust, GMO Short-Duration Collateral
Fund ("SDCF") and approximately 78% of the Fund's interest in Alpha LIBOR
Fund was transferred to SDCF in exchange for SDCF shares. The
reorganization was treated as a sale of the Alpha LIBOR Fund shares for
financial reporting purposes and a distribution by Alpha LIBOR Fund for
tax purposes. Accordingly, for financial
9
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
reporting purposes, the Fund recognized a loss on the sale of the Alpha
LIBOR shares of approximately $17,424,200. In addition, the Fund
recognized for tax, but not for financial reporting purposes, ordinary
income of $6,635,832 and long-term capital gains of $1,183,564 from Alpha
LIBOR Fund. $25,243,596 was added to the tax cost basis of the Fund's
holdings of Alpha LIBOR Fund.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of other funds of the Trust ("underlying funds") and other mutual
funds are valued at their net asset value as reported on each business
day. 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.
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.
10
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Certain securities held by the Fund, or underlying funds in which it
invests, were valued on the basis of a price provided by a principal
market maker. The prices provided by the principal market makers may
differ from the value that would be realized if the securities were sold
and the differences could be material to the financial statements.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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 6 and represents the currency
exposure the Fund has acquired or hedged through forward currency
contracts as of August 31, 2003.
11
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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 6 for
all open futures contracts as of August 31, 2003.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the
12
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
proceeds on the closing transaction to determine the realized gain or
loss. The risk associated with purchasing put and call options is limited
to the premium paid. See the Schedule of Investments for all open
purchased option contracts as of August 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 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
13
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. The Fund also may enter into structured
warrants, which are derivatives like swaps and have risks similar to
swaps. 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 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 6 for a summary of open swap agreements as of August 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.
14
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
In connection with transactions in repurchase agreements, if the seller
defaults or enters into insolvency proceedings and the value of the
collateral declines, recovery of cash by the Fund may be delayed or
limited.
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. The market value of the securities the Fund has sold is
determined daily and any additional required collateral is allocated to or
sent by the fund on the next business day. For the six months ended
August 31, 2003, the Fund had not entered into any reverse repurchase
agreements.
FORWARD COMMITMENTS
The Fund may purchase or sell securities on a when-issued or forward
commitment basis. Payment and delivery may take place a month or more
after the date of the transaction. The price of the underlying securities
and the date when the securities will be delivered and paid for are fixed
at the time the transaction is negotiated. Collateral consisting of liquid
securities or cash and cash equivalents is maintained in an amount at
least equal to these commitments with the custodian.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the investment of the collateral, the risk of delay in recovery
or loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 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
15
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
purposes. Therefore, no provision for U.S. federal income or excise tax is
necessary. Taxes on foreign interest and dividend income are withheld in
accordance with the applicable country's tax treaty with the United
States.
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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
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 the accrual basis and is adjusted for the amortization of
premium and discount. Dividend income is recorded on the ex-dividend date.
Non-cash dividends, if any, are recorded at the fair market value of the
securities received. In determining the net gain or loss on securities
sold, the cost of securities is determined on the identified cost basis.
Interest income on U.S. Treasury inflation indexed securities is accrued
daily based upon an inflation adjusted principal. Additionally, any
increase in principal or face amount of these securities is recorded as
interest income.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and
U.S. securities markets. The risks described above apply to an even
greater extent to investments in emerging markets. The securities markets
of emerging countries are generally smaller, less developed, less liquid,
and more volatile than the securities markets of the U.S. and developed
foreign markets.
16
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .25% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares. The Fund may invest in Class III shares of GMO Emerging Country
Debt Fund ("ECDF"). Like the management fee (as described below), the
Fund's shareholder service fee will be waived (but not below zero) to the
extent of the indirect shareholder service fees paid in connection with
the Fund's investment in ECDF. The Fund does not incur any indirect
shareholder service fees as a result of the Fund's investment in Alpha
LIBOR Fund and SCDF. For the six months ended August 31, 2003, indirect
operating expenses (excluding shareholder service fees (ECDF only) and
investment-related expenses) and indirect investment-related expenses
(including, but not limited to, interest expense, foreign audit expense,
and investment-related legal expense) incurred by the Fund through its
investment in underlying funds were .019% (annualized) and .010%
(annualized) of the Fund's average daily net assets, respectively. For the
six months ended August 31, 2003, shareholder service fees incurred
indirectly by the Fund were .005% (annualized) of the Fund's average daily
net assets.
GMO has entered into a binding agreement effective until at least
June 30, 2004, to reimburse the Fund to the extent that the Fund's total
direct annual operating expenses plus the amount of indirect fees and
operating expenses incurred through its investment in underlying funds
exceed the management fee. For purposes of this calculation, the Fund's
total direct annual operating expenses excludes shareholder service fees,
fees and expenses of the independent Trustees of the Trust (including
legal fees) ("Trustees fees"), and the following investment-related costs:
brokerage commissions, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses, interest expense and transfer taxes.
Additionally, the indirect fees and operating expenses incurred through
investment in underlying funds excludes investment-related expenses and,
with the exception of the Fund's investment in ECDF, Trustees fees.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $2,402. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
17
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
For the six months ended August 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 $143,011,133 $153,417,775
Investments (non-U.S. Government securities) 95,336,477 31,185,442
</Table>
At August 31, 2003, the approximate 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
-------------- ---------------- ---------------- --------------
$392,987,956 $-- $(17,401,907) $(17,401,907)
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 80.6% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------- -------------------------
Shares Amount Shares Amount
Class III: ----------- ------------ ----------- ------------
Shares sold 9,079,333 $ 92,633,563 2,799,171 $ 29,003,553
Shares issued to shareholders in reinvestment
of distributions 725,516 7,422,026 2,938,072 28,757,501
Shares repurchased (3,046,450) (31,062,456) (9,732,495) (101,580,865)
----------- ------------ ----------- ------------
Net increase (decrease) 6,758,399 $ 68,993,133 (3,995,252) $(43,819,811)
=========== ============ =========== ============
</Table>
18
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- -------------- ----------- --------------
Buys
10/16/03 AUD 37,800,000 $24,357,400 $ (44,896)
10/23/03 CAD 9,300,000 6,688,073 60,129
9/11/03 CHF 6,200,000 4,427,819 (119,918)
11/13/03 EUR 53,500,000 58,617,093 525,187
9/02/03 GBP 11,100,000 17,557,425 (206,471)
11/06/03 GBP 28,400,000 44,724,584 221,216
10/09/03 NZD 28,000,000 16,094,190 (94,290)
---------
$ 340,957
=========
Sales
10/23/03 CAD 29,200,000 $20,999,112 $(203,613)
9/02/03 GBP 11,100,000 17,557,425 (88,245)
9/25/03 JPY 1,500,000,000 12,865,264 (130,788)
---------
$(422,646)
=========
</Table>
FORWARD CROSS CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Deliver/Units of Receive/In Appreciation
Date Currency Exchange For (Depreciation)
---------- ------------------ ---------------- --------------
9/18/03 CHF 62,109,788 EUR 40,500,000 80,144
10/02/03 EUR 14,900,000 NOK 121,683,085 (137,539)
10/30/03 EUR 28,800,000 SEK 265,602,708 116,049
---------
$ 58,654
=========
</Table>
19
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
<Table>
<Caption>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- ------------------------------------- ------------------ ------------- --------------
Buys
76 Australian Government Bond 10 Yr. September 2003 $ 5,109,752 $ (134,950)
159 Australian Government Bond 3 Yr. September 2003 10,545,440 (142,139)
3 Canadian Government Bond 10 Yr. December 2003 232,947 1,495
283 U.S. Long Bond December 2003 29,998,000 451,209
332 U.S. Treasury Note 10 Yr. December 2003 36,426,625 267,833
286 U.S. Treasury Note 5 Yr. December 2003 31,419,781 107,839
----------
$ 551,287
==========
Sales
39 Euro BOBL September 2003 $ 4,762,193 $ 11,154
38 Euro BOBL December 2003 4,601,757 (5,253)
63 Euro Bund September 2003 7,904,563 (7,349)
64 Euro Bund December 2003 7,966,062 (8,848)
38 Japanese Government Bond 10 Yr. September 2003 44,713,001 1,803,495
160 UK Gilt Long Bond December 2003 29,752,208 (31,409)
----------
$1,761,790
==========
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
20
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
WRITTEN OPTION TRANSACTIONS
<Table>
<Caption>
Puts Calls
------------------------------ --------------------------------
Principal Amount Principal Amount
of Contracts of Contracts
(000's omitted) Premiums (000's omitted) Premiums
---------------- ------------ ---------------- --------------
Outstanding, beginning of period -- $ -- -- $ --
Options written 23,500 232,650 232,500 232,650
Options exercised (23,500) (232,650) -- --
Options expired -- -- (232,500) (232,650)
-------- --------- --------- -----------
Outstanding, end of period -- $ -- -- $ --
======== ========= ========= ===========
</Table>
21
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
--------------- ---------- -------------------------------------------------- --------------
CREDIT DEFAULT SWAPS
5,000,000 USD 4/02/07 Agreement with Lehman Brothers Special Financing $ 21,723
Inc. dated 3/27/02 to receive .52% per year times
the notional amount. The Fund makes payment only
upon a default event of General Electric Capital
Corporation, 5.875% due 2/15/12.
3,000,000 USD 4/17/07 Agreement with UBS Warburg dated 4/12/02 to 24,407
receive .8% per year times the notional amount.
The Fund makes payment only upon a default event
of Equity Office Properties Trust, 6.75% due
2/15/12.
3,000,000 USD 4/17/07 Agreement with UBS Warburg dated 4/12/02 to 12,212
receive .47% per year times the notional amount.
The Fund makes payment only upon a default event
of Goldman Sachs Group, Inc., 6.6% due 1/15/12.
3,000,000 USD 4/17/07 Agreement with Bear Stearns dated 4/12/02 to 79,612
receive 1.28% per year times the notional amount.
The Fund makes payment only upon a default event
of National Rural Utilities Cooperative Finance
Corp., 7.25% due 3/1/12.
10,000,000 USD 12/20/07 Agreement with Citibank N.A. dated 12/13/02 to 643,502
receive 2.41% per year times the notional amount.
The Fund makes payment only upon a default event
of AOL Time Warner Inc., 6.75% due 4/15/11.
</Table>
22
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
--------------- ---------- -------------------------------------------------- --------------
5,000,000 USD 6/20/08 Agreement with Lehman Brothers Special Financing (25,971)
Inc. dated 6/04/03 to receive .5% per year times
the notional amount. The Fund makes payment only
upon a default event of Dominion Resources, Inc.,
5.7% due 9/17/12.
5,000,000 USD 6/20/08 Agreement with Deutsche Bank AG dated 6/04/03 to 21,991
receive .48% per year times the notional amount.
The Fund makes payment only upon a default event
of Household Finance Corporation, 6.375% due
10/15/11.
5,000,000 USD 6/20/08 Agreement with Deutsche Bank AG dated 6/04/03 to 5,675
receive .65% per year times the notional amount.
The Fund makes payment only upon a default event
of Kraft Foods, Inc., 6.25% due 6/01/12.
5,000,000 USD 6/20/08 Agreement with Deutsche Bank AG dated 6/04/03 to 19,018
receive .4% per year times the notional amount.
The Fund makes payment only upon a default event
of Norfolk Southern Corporation, 6.75% due
2/15/11.
5,000,000 USD 6/20/08 Agreement with Deutsche Bank AG dated 6/04/03 to (44,489)
receive .4% per year times the notional amount.
The Fund makes payment only upon a default event
of Washington Mutual, Inc., 4.375% due 1/15/08.
</Table>
23
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
--------------- ---------- -------------------------------------------------- --------------
INTEREST RATE SWAPS
19,800,000 GBP 6/30/05 Agreement with Citibank N.A. dated 6/30/03 to pay 717,516
the notional amount multiplied by 3.6675% and to
receive the notional amount multiplied by the 6
month Floating Rate British LIBOR adjusted by a
specific spread.
32,600,000 USD 7/02/05 Agreement with Deutsche Bank AG dated 6/30/03 to (443,098)
receive the notional amount multiplied by 1.55%
and to pay the notional amount multiplied by the 3
month LIBOR adjusted by a specific spread
46,600,000 CAD 7/31/05 Agreement with Deutsche Bank AG dated 7/31/03 to 81,977
pay the notional amount multiplied by 3.145% and
to receive the notional amount multiplied by the 3
month Floating Rate Canadian CDOR adjusted by a
specific spread.
33,200,000 USD 8/04/05 Agreement with Goldman Sachs International dated (117,928)
7/31/03 to receive the notional amount multiplied
by 1.975% and to pay the notional amount
multiplied by the 3 month LIBOR adjusted by a
specific spread.
32,700,000 EUR 9/01/05 Agreement with Citibank N.A. dated 8/28/03 to pay (132,547)
the notional amount multiplied by 2.82% and to
receive the notional amount multiplied by the 6
month Floating Rate EURIBOR adjusted by a specific
spread.
</Table>
24
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
--------------- ---------- -------------------------------------------------- --------------
35,800,000 USD 9/02/05 Agreement with JP Morgan Chase Bank dated 8/28/03 14,499
to receive the notional amount multiplied by 2.25%
and to pay the notional amount multiplied by the 3
month LIBOR adjusted by a specific spread.
1,300,000 CHF 4/02/08 Agreement with Citibank N.A. dated 3/31/03 to (9,021)
receive the notional amount multiplied by 1.885%
and to pay the notional amount multiplied by the 6
month Floating Rate Swiss LIBOR adjusted by a
specific spread.
7,378,267 USD 2/15/10 Agreement with JP Morgan Chase Bank dated 9/03/02 57,284
to pay $10,100,000 at expiration date and to
receive at expiration date $7,325,000 plus
interest based upon the 3 month Floating Rate
LIBOR (compounded quarterly) adjusted by a
specific spread.
6,607,704 USD 2/15/12 Agreement with JP Morgan Chase Bank dated 9/3/02 168,684
to pay $10,100,000 at expiration date and to
receive at expiration date $6,560,000 plus
interest based upon the 3 month Floating Rate
LIBOR (compounded quarterly) adjusted by a
specific spread.
6,419,831 USD 8/15/12 Agreement with JP Morgan Chase Bank dated 9/4/02 186,813
to pay $10,100,000 at expiration date and to
receive at expiration date $6,374,000 plus
interest based upon the 3 month Floating Rate
LIBOR (compounded quarterly) adjusted by a
specific spread.
</Table>
25
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
--------------- ---------- -------------------------------------------------- --------------
1,300,000 CHF 4/02/13 Agreement with Citibank N.A. dated 4/02/03 to (20,793)
receive the notional amount multiplied by 2.71%
and to pay the notional amount multiplied by the 6
month Floating Rate Swiss LIBOR adjusted by a
specific spread.
3,148,338 USD 4/15/24 Agreement with JP Morgan Chase Bank dated 9/17/02 307,941
to pay $10,000,000 at expiration date and to
receive at expiration date $3,130,000 plus
interest based upon the 3 month Floating Rate
LIBOR (compounded quarterly) adjusted by a
specific spread.
4,534,087 USD 8/31/25 Agreement with JP Morgan Chase Bank dated 9/5/02 438,281
to pay $15,680,000 at expiration date and to
receive at expiration date $4,516,000 plus
interest based upon the 3 month Floating Rate
LIBOR (compounded quarterly) adjusted by a
specific spread.
TOTAL RETURN SWAPS
28,000,000 USD 9/01/03 Agreement with Lehman Brothers Special Financing 178,161
Inc. dated 7/10/02 to receive (pay) the notional
amount multiplied by the change in market value
(including accrued interest) of the Lehman
Brothers MBS Fixed Rate Index and to pay initial
market value multiplied by the 1 month LIBOR
adjusted by a specified spread.
</Table>
26
<Page>
GMO CORE PLUS BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<Table>
<Caption>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
--------------- ---------- -------------------------------------------------- --------------
31,000,000 USD 11/30/03 Agreement with JP Morgan Chase Bank dated 11/22/02 146,324
to receive (pay) the notional amount multiplied by
the change in market value (including accrued
interest) of the Lehman Brothers U.S. Government
Bond Index and to pay initial market value
multiplied by 1 month LIBOR adjusted by a
specified spread.
32,000,000 USD 12/01/03 Agreement with UBS AG dated 11/22/02 to receive 203,425
(pay) the notional amount multiplied by the change
in market value (including accrued interest) of
the Lehman MBS Fixed Rate Index and to pay initial
market value multiplied by the 1 month LIBOR
adjusted by a specified spread.
50,000,000 USD 8/01/04 Agreement with UBS AG dated 7/30/03 to receive 319,699
(pay) the notional amount multiplied by the change
in market value (including accrued interest) of
the Lehman MBS Fixed Rate Index and to pay initial
market value multiplied by the 1 month LIBOR
adjusted by a specified spread.
28,000,000 USD 9/01/04 Agreement with Lehman Brothers Special Financing --
Inc. dated 8/26/03 to receive (pay) the notional
amount multiplied by the change in market value
(including accrued interest) of the Lehman
Brothers MBS Fixed Rate Index and to pay initial
market value multiplied by the 1 month LIBOR
adjusted by a specified spread.
----------
$2,854,897
==========
</Table>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
27
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
COMMON STOCKS -- 83.9%
ARGENTINA -- 1.8%
39,400 BBVA Banco Frances SA ADR* 198,182
136,655 Grupo Financiero Galicia SA ADR* 553,453
25,300 IRSA Inversiones y Representaciones SA GDR* 214,544
148,250 Petrobras Energia Participaciones SA ADR* 1,111,875
135,800 Telecom Argentina SA ADR* 786,282
30,893 Tenaris SA ADR 779,430
87,800 Transportadora de Gas del Sur ADR* 252,864
-----------
3,896,630
-----------
BRAZIL -- 4.6%
290,455,000 Banco do Brasil SA 1,510,641
109,931,930 Companhia Siderurgica Nacional SA 3,694,099
22,947,000 Compania Saneamento Basico SAO PA 1,003,592
66,838,000 Electrobras 496,601
26,300 Petroleo Brasileiro SA (Petrobras) 583,556
26,500 Petroleo Brasileiro SA (Petrobras) ADR 585,650
131,423 Souza Cruz (Registered) 1,045,259
23,899,000 Tele Centro Oeste Celular Participacoes SA 115,015
32,869,153 Tele Norte Leste Participacoes SA 315,149
6,700 Unibanco-Uniao de Bancos Brasileiros SA GDR 128,975
10,748 Vale Do Rio Doce 402,188
-----------
9,880,725
-----------
CHILE -- 0.6%
6,000 Banco De Chile ADR 129,600
10,900 Banco Santander Chile SA ADR 228,355
9,300 Compania de Telecommunicaciones de Chile ADR 121,179
10,800 Empresa Nacional de Electricidad SA ADR* 103,248
78,600 Enersis SA ADR 420,510
53,150 Quinenco SA ADR* 361,420
-----------
1,364,312
-----------
CHINA -- 8.8%
2,000 Beijing North Star Co 341
227,000 Bengang Steel Plates Co Ltd, Class B* 91,972
3,467,500 Brilliance China Automotive Holdings Ltd 1,100,356
732,000 China Everbright Ltd 358,991
</Table>
See accompanying notes to the financial statements. 1
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
CHINA -- CONTINUED
242,950 China International Marine Containers Co Ltd, Class B* 323,960
1,106,000 China Mobile Ltd 2,843,224
9,600 China Mobile Ltd ADR 124,512
5,033,400 China Petroleum & Chemical Corp, Class H 1,532,733
228,000 China Resources Enterprise Ltd 220,711
407,800 China Unicom 287,575
34,000 China Unicom ADR 243,780
304,900 Chongqing Changan Automobile Co Ltd, Class B 254,495
540,000 CNOOC Ltd 1,003,930
7,500 CNOOC Ltd ADR 283,350
498,000 Cosco Pacific Ltd 555,508
849,100 Denway Motors Ltd 479,019
6,386,100 Guangdong Investments Ltd* 1,170,883
3,600 Huaneng Power International Inc ADR 197,640
619,600 Huaneng Power International Inc, Class H 850,035
3,814,000 Maanshan Iron & Steel Co Ltd, Class H 894,898
12,782,000 PetroChina Co Ltd, Class H 4,465,879
1,090,000 Shandong International Power Development Co Ltd, Class
H 321,437
2,442,000 Stone Electronic Technology Ltd* 294,317
326,000 Tsingtao Brewing Co Ltd, Class H 267,509
474,000 Yanzhou Coal Mining Co Ltd, Class H 278,042
594,000 Zhejiang Southeast Electric Power Co, Class B 375,408
-----------
18,820,505
-----------
CZECH REPUBLIC -- 1.5%
72,155 Ceski Telecom AS 798,775
190,679 CEZ AS 870,773
13,225 Komercni Banka AS 1,060,816
627 Philip Morris CR AS 292,054
128,800 Unipetrol* 283,429
-----------
3,305,847
-----------
EGYPT -- 0.2%
23,648 Commercial International Bank 148,040
5,100 Eastern Tobacco Co 57,220
25,259 MobiNil-Egyptian Mobile Services Co 217,679
-----------
422,939
-----------
</Table>
See accompanying notes to the financial statements.
2
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
HUNGARY -- 0.3%
1,000 Gedeon Richter Rt 85,128
2,600 Magyar Tavkozlesi Rt (Matav) ADR 49,140
4,200 MOL Magyar Olaj es Gazipari Rt (New Shares) 103,507
27,700 OTP Bank Rt* 315,389
7,000 Pannonplast Rt* 40,372
-----------
593,536
-----------
INDIA -- 5.0%
25,700 Hindalco Industries Ltd GDR 508,860
91,100 ICICI Bank Ltd ADR 882,759
3,800 Infosys Technologies ADR 215,270
13,100 ITC Ltd GDR 255,057
46,922 Larsen & Toubro Ltd GDR 609,986
35,400 Mahindra & Mahindra Ltd GDR 156,822
53,320 Ranbaxy Laboratories Ltd GDR 1,241,823
120,100 Reliance Industries Ltd GDR 144A 2,197,830
73,200 Satyam Computer Services Ltd ADR 871,812
149,500 State Bank of India GDR 3,752,450
-----------
10,692,669
-----------
INDONESIA -- 3.7%
5,982,300 Bank Central Asia Tbk 2,062,254
650,000 Bank Mandiri Persero PT* 65,115
5,757,000 Gajah Tunggal Tbk* 356,208
375,000 Gudang Garam 406,600
2,097,000 HM Sampoerna Tbk 1,000,925
4,417,000 Indofood Sukses Makmur Tbk 351,382
8,722,000 PT Matahari Putra Prima Tbk 488,268
800,000 Ramayana Lestari Sentosa 278,138
5,181,112 Telekomunikasi Indonesia Tbk PT, Class B 2,793,587
-----------
7,802,477
-----------
ISRAEL -- 2.4%
473,200 Bank Hapoalim Ltd* 923,187
361,200 Bank Leumi Le-Israel* 505,550
71,400 Check Point Software Technologies* 1,247,360
72,400 Machteshim Agan Industries 193,056
131,900 Super-Sol Ltd 254,658
6,500 Taro Pharmaceuticals Industries* 350,935
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
ISRAEL -- CONTINUED
27,600 Teva Pharmaceutical Industries ADR 1,620,451
-----------
5,095,197
-----------
MALAYSIA -- 0.4%
8,000 British American Tobacco Berhad 86,316
61,000 IJM Corp Berhad, Class A 79,621
76,000 Malakoff Berhad 96,800
153,000 Malaysia Mining Corp 111,932
11,000 Malaysian Oxygen Berhad 31,842
76,600 Maxis Communications Berhad 130,018
70,000 Perusahaan Otomobil Nasional 141,842
60,000 PPB Group Berhad 85,263
42,000 Telekom Malaysia Berhad 85,658
33,000 Tenaga Nasional Berhad 78,158
-----------
927,450
-----------
MEXICO -- 3.2%
472,800 Alfa SA de CV, Class A 1,109,900
38,900 America Movil SA de CV ADR 894,700
41,100 Apasco SA de CV 305,465
186,500 Carso Global Telecom, Class A* 223,976
76,900 Grupo Continental SA 110,196
360,900 Grupo Financiero Banorte SA de CV 961,702
149,600 Grupo Mexico SA, Class B* 205,424
170,700 Organizacion Soriana SA de CV, Class B* 342,854
74,500 Telefonos de Mexico, Class L ADR 2,258,095
140,000 Wal-Mart de Mexico SA de CV 382,960
-----------
6,795,272
-----------
PERU -- 0.1%
3,500 Cia de Minas Buenaventura SA ADR 133,665
-----------
PHILIPPINES -- 2.5%
2,352,680 Aboitiz Equity Ventures Inc 102,718
19,561,300 Ayala Land Inc 2,063,954
269,400 Equitable PCI Bank* 154,377
968,570 First Philippine Holdings* 299,540
833,902 Ginebra San Miguel Inc 447,519
21,912 Globe Telecom Inc 247,143
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
PHILIPPINES -- CONTINUED
194,000 Philippine Long Distance Telephone* 1,888,121
4,200 Philippine Long Distance Telephone ADR* 42,000
-----------
5,245,372
-----------
POLAND -- 4.1%
610,700 Bank Millennium SA* 465,626
32,100 Bank Pekao SA 1,021,791
37,500 BRE Bank SA* 1,066,293
1,200 Browary Zywiec SA 132,862
10,800 Debica SA 303,016
16,602 Grupa Kety SA 484,602
213,300 KGHM Polska Miedz SA* 1,105,668
67,800 Optimus SA* 159,517
57,059 Orbis SA 407,764
291,000 Polski Koncern Naftowy Orlen 1,808,659
418,900 Telekomunikacja Polska SA 1,755,057
8,300 Telekomunikacja Polska SA GDR 144A 34,777
-----------
8,745,632
-----------
RUSSIA -- 2.8%
33,000 AO Mosenergo ADR 226,050
28,225 Lukoil ADR 2,194,494
1,500 Lukoil ADR 144A 116,625
11,700 MMC Norilsk Nickel ADR 462,150
3,200 Mobile Telesystems ADR 225,536
16,250 Rostelecom ADR 169,812
650 Sberbank RF 165,100
2,700 Unified Energy Systems ADR 84,037
7,300 Unified Energy Systems GDR 228,125
4,300 Vimpel-Communications ADR* 231,813
31,362 Yukos Corp ADR 1,795,475
-----------
5,899,217
-----------
SOUTH AFRICA -- 8.2%
200,400 ABSA Group Ltd 969,192
64,000 AECI Ltd 233,997
35,000 Amalgamated Beverage Industries Ltd 286,494
30,563 Edgars Consolidated Stores Ltd 369,508
113,000 Foschini Ltd 269,782
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
SOUTH AFRICA -- CONTINUED
20,955 Impala Platinum Holdings Ltd 1,629,487
36,000 Investec Ltd 451,842
1,129,767 Iscor Ltd 3,190,474
348,000 MTN Group Ltd* 861,692
69,000 Murray & Roberts Holdings Ltd 121,432
49,700 Naspers Ltd 186,460
90,156 Nedcor Ltd 1,023,326
95,000 Pick'n Pay Stores Ltd 195,055
13,700 Pretoria Portland Cement Co Ltd 217,742
349,100 Remgro Ltd 2,905,198
1,056,000 Sanlam Ltd 1,044,475
120,000 Sasol Ltd 1,391,542
46,000 Standard Bank Investment Corp 206,467
222,600 Venfin Ltd* 519,602
1,489,000 Woolworths Holdings Ltd 1,330,553
-----------
17,404,320
-----------
SOUTH KOREA -- 14.4%
1,200 Amorepacific Corp 150,732
54,470 Cheil Industries Inc 730,427
270,000 Chohung Bank* 882,241
84,100 Daesang Corp 271,233
62,900 Daewoo Shipbuilding & Marine Engineering Co Ltd* 715,349
16,620 Daum Communications Corp* 923,921
22,800 Dongbu Steel Co 80,789
125,400 Hanaro Telecom Inc* 375,694
104,000 Hanjin Heavy Industry 485,466
224,200 Hyundai Engineering & Construction* 397,690
6,800 Hyundai Heavy Industries* 174,870
30,600 Hyundai Industrial Development 243,086
10,900 Hyundai Mobis 383,917
9,900 Hyundai Motor Co 329,370
3,800 Kangwon Land Inc 426,684
61,500 KIA Motors Corp 476,550
21,300 Kookmin Credit Card Co Ltd* 341,668
134,800 Korea Electric Power Corp 2,208,054
28,000 Korea Electric Power Corp ADR 258,440
181,800 Korea Exchange Bank* 814,686
6,800 Korea Gas Corp 151,784
50,100 Korean Air Lines 631,432
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
SOUTH KOREA -- CONTINUED
45,000 KT Corp 1,712,922
80,900 KT&G Corp 1,338,892
14,500 KT&G Corp GDR 144A 118,610
68,500 Kumho Industrial Co Ltd* 128,774
63,025 LG Card Co Ltd 1,125,972
28,700 LG Electronics Inc 1,558,922
74,600 LG Engineering & Construction Ltd 1,247,290
220,040 LG International Corp 1,460,397
67,700 LG Investment & Securities Co Ltd 815,905
86,000 LG Telecom Co Ltd* 290,134
13,390 POSCO 1,579,639
7,324 Samsung Electronics 2,703,959
1,614 Samsung Electronics GDR 144A (Non Voting) 146,874
13,100 Samsung SDI Co Ltd 1,228,559
56,300 Samsung Techwin Co Ltd* 506,497
116,736 SK Corp 1,654,565
800 SK Telecom Co Ltd 136,474
107,600 Ssangyong Motor Co* 757,972
15,810 Taegu Department Store Co 128,144
117,900 Woori Finance Holdings Co Ltd 735,468
-----------
30,830,052
-----------
TAIWAN -- 12.9%
346,850 Acer Inc 512,791
269,100 Ambit Microsystems Corp 736,602
1,459,843 Asustek Computer Inc 3,931,892
488,000 AU Optronics Corp 650,038
891,000 Benq Corp 1,317,276
7,120,779 China Development Financial Holding Corp 2,668,364
2,900,815 China Steel Corp 2,318,410
729,270 Chinatrust Financial Holding Co 593,527
31,050 Chunghwa Telecom Co Ltd ADR 438,426
543,950 Compal Electronics Inc 828,075
426,000 Compeq Manufacturing Co Ltd* 165,247
448,800 Evergreen Marine Corp 308,765
26,200 First Financial Holding Co Ltd GDR* 308,636
1,889,000 Grand Commercial Bank* 713,394
10,280 Hsinchu International Bank* 4,469
657,000 Hua Nan Financial Holdings Co Ltd* 467,390
1,951,370 Inventec Co Ltd 1,188,257
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
TAIWAN -- CONTINUED
167,400 MediaTek Inc 1,666,257
2,063,000 Mosel Vitelic Inc* 142,534
540,048 Nan Ya Plastic Corp 648,222
2,404,000 Ritek Corp* 1,653,902
81,780 Synnex Technology International Corp 123,300
1,894,140 Taiwan Cement Corp 698,699
1,479,000 Taiwan Pulp & Paper Corp* 213,030
718,520 Taiwan Semiconductor Manufacturing Co Ltd* 1,409,358
1,654,846 United Microelectronics Corp* 1,356,511
3,501,000 Walsin Lihwa Corp* 896,825
557,000 Winbond Electronics Corp* 324,501
711,960 Yageo Corp* 260,539
725,000 Yang Ming Marine Transport 619,767
224,000 Yulon Motor Co Ltd 259,687
-----------
27,424,691
-----------
THAILAND -- 3.2%
924,000 Advanced Info Service Pcl (Foreign Registered) 1,248,041
124,300 Electricity Generating Pcl NVDR 181,504
607,600 Kasikornbank Pcl NVDR* 613,663
212,600 Land & House Pcl (Foreign Registered) 62,606
2,170,000 Land & House Pcl NVDR 565,077
1,135,000 National Finance Pcl NVDR 386,712
139,940 PTT Exploration & Production Pcl (Foreign
Registered)(a) 538,100
357,600 PTT Pcl (Foreign Registered)(a) 635,308
2,552,000 Quality House Co Ltd (Foreign Registered)(a) 543,441
227,000 Saha Union Pcl (Foreign Registered)(a) 150,541
472,300 Shin Satellite (Foreign Registered)*(a) 262,070
3,900 Siam Cement Pcl (Foreign Registered) 17,844
220,100 Siam Cement Pcl (Foreign Registered) NVDR 910,611
190,750 Siam Commercial Bank Pcl (Foreign Registered)* 181,048
209,400 Thai Airways International (Foreign Registered)(a) 290,479
345,200 Thai Union Frozen Products Pcl (Foreign Registered) 260,433
-----------
6,847,478
-----------
TURKEY -- 3.2%
356,439,607 Akbank TAS 1,106,126
49,252,000 Aksa Akrilik Kimya Sanayii 382,983
57,066,665 Aksigorta AS 172,004
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
TURKEY -- CONTINUED
7,657,000 Anadolu Isuzu Otomotiv Sanay* 51,893
2,315,000 Brisa Bridgestone Sabanci 64,822
41,422,000 Carsi Buyuk Magazacilik AS* 45,803
8,591,600 Enka Insaat ve Sanayi AS 324,847
61,113,200 Eregli Demir ve Celik Fabrikalari TAS* 950,432
34,007,200 Ford Otomotive Sanayii AS* 468,228
50,511,000 Global Menkul Degerler AS* 29,548
250,186,000 Is Gayrimenkul Yatirim Ortakligi AS* 165,988
35,491,000 Milliyet Gazetecilik AS* 69,627
293,729,000 Tansas Perakende Magazacilik Ticaret AS* 213,735
58,930,387 Tupras Turkiye Petrol Rafine 479,263
31,636,600 Turkcell Iletisim Hizmet AS* 230,207
998,097,082 Turkiye Garanti Bankasi* 1,537,999
101,579,243 Turkiye IS Bankasi* 376,823
241,818,918 Yapi ve Kredi Bankasi* 241,517
-----------
6,911,845
-----------
TOTAL COMMON STOCKS (COST $141,532,364) 179,039,831
-----------
PREFERRED STOCKS -- 10.3%
BRAZIL -- 6.9%
410,785,000 Acesita SA* 198,387
1,796,000 Ambev Ciade Rebid 1.67% 397,291
26,924,000 Banco Itau Holding Financeira SA 2,041,350
29,521,350 Brasil Telecom Participacoes SA 2.19% 224,227
6,850 Compania Vale do Rio Doce, Class A 234,811
577,886,000 Embratel Participacoes SA* 1,186,608
66,957 Gerdau SA 1,003,337
2,051,511 Investimentos Itau SA 2.68% 1,960,748
53,118,000 Lojas Americanas SA 304,787
221,128 Petroleo Brasileiro SA (Petrobras) 3.01% 4,540,555
58,305,163 Siderurgica de Tubarao 3.50% 1,169,648
491,015,000 Tele Centro Oeste Celular Participacoes SA 6.78% 998,281
16,480,000 Tele Norte Leste Participacoes SA 3.44% 214,780
20,545,400 Telemar Norte Leste SA 311,963
-----------
14,786,773
-----------
</Table>
See accompanying notes to the financial statements.
9
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------
RUSSIA -- 0.2%
325 Transneft 130,000
610,200 Unified Energy Systems 178,783
-----------
308,783
-----------
SOUTH KOREA -- 3.2%
33,000 Dongbu Steel Co 11.70% 84,863
10,200 Hyundai Motor Co 5.05% 154,959
13,000 LG Chem Ltd 265,903
34,100 Samsung Electronics (Non Voting) 4.08% 6,164,481
3,000 Samsung SDI Co Ltd 3.63% 145,130
-----------
6,815,336
-----------
TOTAL PREFERRED STOCKS (COST $16,380,736) 21,910,892
-----------
RIGHTS AND WARRANTS -- 0.3%
THAILAND -- 0.3%
132,750 Adkinson Securities Warrants, Expires 1/16/04* 12,729
132,750 Adkinson Securities Warrants, Expires 1/16/06* 19,385
2,665,000 Land & House Warrants, Expires 9/02/08 (Foreign
Registered)* 512,375
510,400 Quality House Co Ltd Warrants, Expires 5/14/08* 34,159
116,526 Telecomasia Corp Pcl Warrants, Expires 4/3/08*(a) --
-----------
578,648
-----------
TOTAL RIGHTS AND WARRANTS (COST $32,040) 578,648
-----------
TOTAL INVESTMENTS -- 94.5%
(Cost $157,945,140) 201,529,371
Other Assets and Liabilities (net) -- 5.5% 11,731,464
-----------
TOTAL NET ASSETS -- 100.0% $213,260,835
===========
</Table>
See accompanying notes to the financial statements.
10
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
<Table>
144A - Securities exempt from registration under rule 144A of
the Securities Act of 1933. These securities may be
resold in transactions exempt from registration, normally
to qualified institutional investors.
ADR - American Depositary Receipt
GDR - Global Depository Receipt
NVDR - Non-Voting Depository Receipt
</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).
See accompanying notes to the financial statements. 11
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
AUGUST 31, 2003 (UNAUDITED)
At August 31, 2003, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
- --------------------------------------------------------------------
Financials 20.6%
Information Technology 15.5
Energy 13.9
Telecommunication Services 12.7
Materials 12.3
Industrials 7.5
Consumer Discretionary 7.3
Utilities 4.4
Consumer Staples 4.2
Health Care 1.6
-----
100.0%
=====
</Table>
12 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $157,945,140) (Note 1) $201,529,371
Cash 9,563,770
Foreign currency, at value (cost $315,411) (Note 1) 311,913
Receivable for investments sold 13,586
Receivable for Fund shares sold 1,488,451
Dividends and interest receivable 660,211
Foreign taxes receivable 475
Receivable for expenses reimbursed by Manager (Note 2) 15,763
------------
Total assets 213,583,540
------------
LIABILITIES:
Payable for investments purchased 13,581
Payable for Fund shares repurchased 44,702
Payable to affiliate for (Note 2):
Management fee 109,588
Shareholder service fee - Class III 21,321
12b-1 fee - Class M 12,783
Administration fee - Class M 5,291
Accrued expenses 115,439
------------
Total liabilities 322,705
------------
NET ASSETS $213,260,835
============
NET ASSETS CONSIST OF:
Paid-in capital $175,594,798
Accumulated undistributed net investment income 1,350,157
Accumulated net realized loss (7,257,206)
Net unrealized appreciation 43,573,086
------------
$213,260,835
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $179,284,340
============
Class M shares $ 33,976,495
============
SHARES OUTSTANDING:
Class III 15,772,549
============
Class M 3,004,938
============
NET ASSET VALUE PER SHARE:
Class III $ 11.37
============
Class M $ 11.31
============
</Table>
See accompanying notes to the financial statements. 13
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $302,798) $ 2,734,706
Interest 49,421
-----------
Total income 2,784,127
-----------
EXPENSES:
Management fee (Note 2) 501,874
Custodian fees 267,385
Audit fees 28,336
Transfer agent fees 23,736
Registration fees 12,880
Legal fees 2,852
Trustees fees and related expenses (Note 2) 1,311
Miscellaneous 1,012
Fees reimbursed by Manager (Note 2) (41,381)
-----------
798,005
Shareholder service fee (Note 2) - Class III 105,154
-----------
12b-1 fee (Note 2) - Class M 17,772
-----------
Administration fee (Note 2) - Class M 14,218
-----------
Net expenses 935,149
-----------
Net investment income 1,848,978
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 3,911,155
Foreign currency, forward contracts and foreign
currency related transactions (157,002)
-----------
Net realized gain 3,754,153
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 43,591,355
Foreign currency, forward contracts and foreign
currency related transactions (15,282)
-----------
Net unrealized gain 43,576,073
-----------
Net realized and unrealized gain 47,330,226
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $49,179,204
===========
</Table>
14 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,848,978 $ 588,797
Net realized gain 3,754,153 1,384,046
Change in net unrealized appreciation (depreciation) 43,576,073 (8,305,395)
------------ -----------
Net increase (decrease) in net assets from
operations 49,179,204 (6,332,552)
------------ -----------
Distributions to shareholders from:
Net investment income
Class III (906,080) (1,010,952)
Class M (172,134) --
------------ -----------
Total distributions from net investment income (1,078,214) (1,010,952)
------------ -----------
Net share transactions (Note 5):
Class III 46,930,001 23,980,200
Class M 28,608,989 579,467
------------ -----------
Increase in net assets resulting from net share
transactions 75,538,990 24,559,667
------------ -----------
Total increase in net assets 123,639,980 17,216,163
NET ASSETS:
Beginning of period 89,620,855 72,404,692
------------ -----------
End of period (including accumulated undistributed
net investment income of $1,350,157 and $579,393,
respectively) $213,260,835 $89,620,855
============ ===========
</Table>
See accompanying notes to the financial statements. 15
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 2003 ----------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
---------------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.54 $ 9.65 $ 8.81 $ 11.41 $ 5.74 $ 8.61
-------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.12+ 0.08 0.14 0.08 0.05 0.23
Net realized and unrealized
gain (loss) 2.77 (1.04) 0.77 (2.48) 5.63 (2.94)
-------- ------- ------- ------- ------- -------
Total from investment operations 2.89 (0.96) 0.91 (2.40) 5.68 (2.71)
-------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.06) (0.15) (0.07) -- -- (0.16)
From net realized gains -- -- -- (0.20) (0.01) --
-------- ------- ------- ------- ------- -------
Total distributions (0.06) (0.15) (0.07) (0.20) (0.01) (0.16)
-------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 11.37 $ 8.54 $ 9.65 $ 8.81 $ 11.41 $ 5.74
======== ======= ======= ======= ======= =======
TOTAL RETURN(a) 33.89%** (10.15)% 10.49% (21.27)% 98.96% (31.60)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $179,284 $89,042 $72,405 $52,239 $65,191 $31,718
Net expenses to average daily
net assets 1.19%* 1.27% 1.40% 1.40% 1.28% 1.27%
Net investment income to average
daily net assets 2.45%* 0.78% 2.12% 0.91% 0.54% 3.65%
Portfolio turnover rate 22%** 108% 109% 98% 157% 158%
Fees and expenses reimbursed by the
Manager to average daily
net assets: 0.05%* 0.31% 0.17% 0.15% 0.17% 0.34%
Purchase and redemption fees
consisted of the following per
share amounts:(b) -- $ 0.00(c) $ 0.04 $ 0.02 -- --
</Table>
* Annualized.
** Not Annualized.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown. Calculations exclude purchase
premiums and redemption fees.
(b) Effective March 1, 2000 the fund adopted the provisions of the revised
AICPA Audit and Accounting Guide for Investment Companies which requires
the disclosure of the per share effect of purchase and redemption fees.
Periods prior to March 1, 2000 have not been restated to reflect this
change. Amounts calculated using average shares outstanding throughout
the period.
(c) Purchase and redemption fees were less than $0.01 per share. The
redemption fees and purchase premiums were rescinded effective
April 1, 2002.
+ Computed using average shares outstanding throughout the period.
16 See accompanying notes to the financial statements.
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS M SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
JULY 9, 2002
SIX MONTHS ENDED (COMMENCEMENT
AUGUST 31, 2003 OF OPERATIONS) THROUGH
(UNAUDITED) FEBRUARY 28, 2003
---------------- ----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.51 $ 9.85
------- -------
Income from investment operations:
Net investment income 0.10+ 0.01
Net realized and unrealized gain (loss) 2.76 (1.35)
------- -------
Total from investment operations 2.86 (1.34)
------- -------
Less distributions to shareholders:
From net investment income (0.06) --
------- -------
Total distributions (0.06) --
------- -------
NET ASSET VALUE, END OF PERIOD $ 11.31 $ 8.51
======= =======
TOTAL RETURN(a) 33.69%** (13.60)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $33,976 $ 579
Net expenses to average daily net assets 1.47%* 1.57%*
Net investment income to average daily net assets 1.81%* 0.20%*
Portfolio turnover rate 22%** 108%
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.05%* 0.41%*
</Table>
* Annualized.
** Not Annualized.
(a) The total returns would have been lower had certain expenses not been
reimbursed during the periods shown.
+ Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 17
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO Emerging Countries Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series of shares into classes.
The Fund seeks high total return through investment in equity securities
traded in the securities markets of developing countries of Asia, Latin
America, the Middle East, Africa and Europe ("Emerging Countries"). The
Fund's benchmark is the S&P/IFCI (Investable) Composite Index.
Throughout the six months ended August 31, 2003, the Fund had two classes
of shares outstanding: Class III and Class M. The principal economic
difference between the classes of shares is Class III shares bear a
shareholder service fee while Class M shares bear an administration fee
and a 12b-1 fee (See Note 2).
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of mutual funds are valued at their net asset value as reported on
each business day. 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
18
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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. There were no forward foreign currency contracts
outstanding as of August 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.
19
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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. At August 31, 2003,
there were no outstanding futures contracts.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
20
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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
21
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
disagree as to the meaning of contractual terms in the agreements, or that
there may be unfavorable changes in the price of the security or index
underlying these transactions. At August 31, 2003, there were no open swap
agreements.
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 carryover for
U.S. federal income tax purposes. Therefore, no provision for U.S. federal
income or excise tax is necessary. Taxes on foreign interest and dividend
income 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code of $1,253,194, $7,353,298 and $156,212 expiring in 2009, 2010 and
2011, respectively. The Fund has elected to defer to March 1, 2003
post-October capital losses of $1,808,334.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the
22
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
amortization of premiums and discounts. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. Dividends
representing a return of capital are reflected as a reduction of cost,
when the amount of return of capital is conclusively determined. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. Investment
income, common expenses and realized and unrealized gains and losses are
allocated pro-rata among the classes of shares of the Fund based on the
relative net assets of each class. Shareholder service, 12b-1, and
administration fees, which are directly attributable to a class of shares,
are charged to that class' operations.
PURCHASE AND REDEMPTION OF FUND SHARES
Effective April 1, 2002 the Fund ceased charging a purchase premium or
redemption fee in connection with the purchase or sale of Fund shares.
Prior to April 1, 2002, the premium on cash purchases of Fund shares was
1.20% of the amount invested. In the case of cash redemptions, the fee was
.40% of the amount redeemed. All purchase premiums and redemption fees
were paid to and recorded by the Fund as paid-in capital. For the year
ended February 28, 2003, the Fund received $0 and $1,000 in purchase
premiums and redemption fees, respectively.
INVESTMENT RISK
Investments in securities of issuers in emerging countries present certain
risks that are not inherent in many other investments. Many emerging
countries present elements of political and/or economic instability. The
securities markets of emerging countries are generally smaller and less
developed than the securities markets of the U.S. and developed foreign
markets. Further, countries may impose various types of foreign currency
regulations or controls which may impede the Fund's ability to repatriate
amounts it receives. The Fund may acquire interests in securities in
anticipation of improving conditions in the related countries. These
factors may result in significant volatility in the values of its
holdings. The markets for emerging countries are relatively illiquid.
Accordingly, the Fund may not be able to realize in an actual sale amounts
approximating those used to value its holdings.
23
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .65% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
Class M shares of the Fund pays GMO an administration fee monthly at an
annual rate of .20% of average daily Class M net assets for support
services provided to Class M shareholders.
Fund Distributors, Inc. (the "Distributor") serves as the Fund's
distributor. Pursuant to a Rule 12b-1 distribution plan adopted by the
Fund, Class M shares of the Fund pay a fee, at the annual rate of .25% of
average daily Class M net assets for any activities or expenses intended
to result in the sale of Class M shares of the Fund. This fee may be spent
by the Distributor on personal services rendered to Class M shareholders
of the Fund and/or maintenance of Class M shareholder accounts.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees (Class III
only), administration fees (Class M only), 12b-1 fees (Class M only), and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, and
transfer taxes), exceed 1.00% of the Fund's average daily net assets.
Prior to June 30, 2003, GMO agreed to reimburse the Fund to the extent
that the Fund's total annual operating expenses (excluding expenses of the
independent Trustees of the Trust (including legal fees), brokerage
commissions and other investment-related costs, hedging transaction fees,
extraordinary, non-recurring and certain other unusual expenses (including
taxes), securities lending fees and expenses, interest expense, and
transfer taxes), exceed 1.25% and 1.55% of the Fund's average daily net
assets for Class III and Class M, respectively.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $1,035. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
As of August 31, 2003, greater than 10% of the Fund's shares were held by
accounts for which the Manager has investment discretion.
24
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003
aggregated $100,828,174 and $31,539,004, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$158,629,104 $45,619,509 $(2,719,242) $42,900,267
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 48.6% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the outstanding
shares of the Fund. Investment activities of these shareholders may have a
material effect on the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
Class III:
Shares sold 9,115,819 $ 84,704,253 7,169,991 $ 63,503,546
Shares issued to shareholders in reinvestment
of distributions 62,552 660,551 99,670 970,789
Shares repurchased (3,838,376) (38,434,803) (4,337,592) (40,494,135)
---------- ------------ ---------- ------------
Net increase 5,339,995 $ 46,930,001 2,932,069 $ 23,980,200
========== ============ ========== ============
</Table>
25
<Page>
GMO EMERGING COUNTRIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Period from July 9,
2002
(commencement of
Six Months Ended operations)
August 31, 2003 through February 28,
(Unaudited) 2003
------------------------ ---------------------
Shares Amount Shares Amount
---------- ------------ --------- ----------
Class M:
Shares sold 4,289,215 $ 41,693,875 170,323 $1,468,988
Shares issued to shareholders in reinvestment
of distributions 16,378 172,134 -- --
Shares repurchased (1,368,629) (13,257,020) (102,349) (889,521)
---------- ------------ --------- ----------
Net increase 2,936,964 $ 28,608,989 67,974 $ 579,467
========== ============ ========= ==========
</Table>
26
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SEMI-ANNUAL REPORT
AUGUST 31, 2003
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
COMMON STOCKS -- 95.7%
AUSTRALIA -- 2.9%
29,713 Australia and New Zealand Banking Group Ltd 336,940
108,315 General Property Trust Units 195,598
42,800 National Australia Bank Ltd 861,265
15,156 Orica Ltd 112,910
94,880 Telstra Corp Ltd 308,284
117,650 Westfield Trust Units 251,292
50,466 Westpac Banking Corp 511,193
48,837 Woodside Petroleum Ltd 421,990
-------------
2,999,472
-------------
AUSTRIA -- 3.0%
10,500 Austrian Airlines* 73,664
1,600 Bau Holdings AG 122,965
2,800 Boehler Uddeholm (Bearer) 147,896
2,500 Brau Union AG 343,368
1,113 Erste Bank Der Oesterreichischen Sparkassen AG 102,523
3,600 Flughafen Wien AG 134,106
4,104 Generali Holding Vienna AG 96,919
3,800 Mayr-Melnhof Karton AG (Bearer) 324,583
2,900 Oesterreichische Brau Beteiligungs AG 388,437
5,474 OMV AG 643,120
18,737 Telekom Austria AG* 195,634
4,200 VA Technologie AG (Bearer)* 118,046
927 Verbund-Oesterreichische Elektrizitaetswirtschafts AG 83,262
4,466 Voestalpine AG 173,917
8,900 Wienerberger AG 169,532
-------------
3,117,972
-------------
BELGIUM -- 2.4%
11,899 Almanij NV 479,576
1,988 Bekaert SA 95,403
2,433 Electrabel SA 610,100
38,663 Fortis, Class B 649,881
11,848 KBC Bankverzekeringsholding 460,741
2,226 Solvay Et Cie 146,391
-------------
2,442,092
-------------
</Table>
See accompanying notes to the financial statements.
1
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
CANADA -- 1.7%
7,200 Bank of Nova Scotia 319,423
10,800 EnCana Corp 404,392
2,400 Magna International Inc 175,768
1,200 MI Developments Inc* 23,876
8,800 National Bank of Canada 222,355
103,500 Nortel Networks Corp* 335,760
5,600 Petro-Canada 220,504
-------------
1,702,078
-------------
FINLAND -- 1.5%
28,200 Fortum Oyj 228,491
48,950 Nokia Oyj 801,834
31,900 Sampo Oyj 245,862
13,500 UPM-Kymmene Oyj 244,557
-------------
1,520,744
-------------
FRANCE -- 4.5%
54,270 Alcatel SA* 589,872
4,403 Assurances Generales de France 197,810
18,217 BNP Paribas 907,620
6,250 Carrefour SA 311,529
8,965 Cie de Saint-Gobain 350,301
29,108 France Telecom SA* 722,243
2,364 Group Danone 324,170
6,448 Sanofi-Synthelabo SA 362,458
8,607 Societe Generale, Class A 570,757
5,978 Vivendi Universal SA* 100,483
35,859 Wanadoo* 235,824
-------------
4,673,067
-------------
GERMANY -- 8.0%
2,591 Adidas-Salomon AG 216,763
87,200 Bankgesellschaft Berlin AG* 211,579
13,261 BASF AG 615,856
10,282 Bayer AG 220,354
15,000 Continental AG 386,186
19,391 DaimlerChrysler AG (Registered) 744,702
3,900 Degussa AG 112,183
19,028 Deutsche Post AG 300,828
</Table>
2 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
GERMANY -- CONTINUED
82,918 Deutsche Telekom* 1,188,016
30,477 E. On AG 1,572,653
1,911 Fresenius Medical Care AG 97,141
9,017 Metro AG 324,217
10,200 RWE AG 274,925
6,950 SAP AG 832,096
6,900 Sudzucker AG 107,951
29,523 ThyssenKrupp AG 399,656
12,668 Volkswagen AG 621,696
-------------
8,226,802
-------------
HONG KONG -- 2.0%
81,500 CLP Holdings Ltd 359,466
115,000 Hang Lung Group Co Ltd 117,959
31,000 Henderson Land Development Co Ltd 117,253
116,500 Hong Kong Electric Holdings Ltd 460,064
45,000 Hong Kong Land Holdings 60,300
65,000 Hutchison Whampoa Ltd 479,207
162,000 Yue Yuen Industrial Holdings 481,886
-------------
2,076,135
-------------
IRELAND -- 0.5%
19,373 Allied Irish Banks Plc 272,038
22,299 Bank of Ireland 265,141
-------------
537,179
-------------
ITALY -- 5.0%
12,768 Alleanza Assicurazioni SPA 115,228
35,259 Assicurazioni Generali SPA 757,571
168,141 Banca Intesa SPA 504,887
79,784 Enel SPA 486,151
83,751 ENI-Ente Nazionale Idrocarburi SPA 1,265,235
32,502 Fiat SPA* 219,813
26,491 Mediobanca SPA 261,469
54,228 Parmalat Finanziaria SPA 175,336
25,471 RAS SPA 366,336
151,968 Telecom Italia Mobile SPA 670,720
</Table>
See accompanying notes to the financial statements. 3
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
ITALY -- CONTINUED
123,379 Telecom Italia SPA* 289,880
-------------
5,112,626
-------------
JAPAN -- 23.5%
9,020 Acom Co Ltd 374,158
15,000 Brother Industries Ltd 133,056
22,000 Canon Inc 1,057,765
27,000 Canon Sales Co Inc 206,874
18,700 Chubu Electric Power Co Inc 340,568
10,100 Chugoku Electric Power Co Inc 155,811
44,000 Cosmo Oil Co Ltd 77,305
18,000 Dai Nippon Printing Co Ltd 229,397
33,000 Daiichi Pharmaceuticals Co Ltd 504,559
32,000 Daiwa House Industry Co Ltd 249,297
95 East Japan Railway Co 401,397
62,000 Fuji Heavy Industries Ltd 305,537
9,000 Fuji Photo Film Co Ltd 269,969
89,000 Furukawa Electric Co Ltd 323,414
150,000 Itochu Corp 449,949
31 Japan Tobacco Inc 181,196
24,825 JFE Holdings Inc 499,989
151,000 Kajima Corp 412,830
20,800 Kansai Electric Power Co Inc 328,187
14,000 Kao Corp 263,970
244,000 Kawasaki Heavy Industries Ltd 309,496
53 KDDI Corp 271,178
1,500 Keyence Corp 313,293
59,000 Kirin Brewery Co Ltd 422,223
477,000 Kobe Steel Ltd* 555,982
34,000 Komatsu Ltd 194,069
38,735 Konica Minolta Holdings Inc 530,830
7,500 Kyushu Electric Power Co Inc 113,580
127,000 Mazda Motor Corp 334,153
29,000 Mitsubishi Corp 245,063
153,000 Mitsubishi Electric Corp 628,103
107,000 Mitsubishi Materials Corp* 159,565
115,000 Mitsubishi Motors Corp* 250,343
60 Mitsubishi Tokyo Finance Group Inc 349,674
86,000 Mitsui OSK Lines Ltd 298,509
382 Mizuho Financial Group Inc* 474,717
</Table>
4 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
JAPAN -- CONTINUED
59,000 NEC Corp* 439,921
63,000 Nippon Express Co Ltd 258,091
59 Nippon Telegraph & Telephone Corp 259,907
64,000 Nissan Motor Co 687,281
207 NTT Docomo Inc 532,225
19,000 Olympus Optical Co Ltd 436,407
9,000 Ono Pharmaceutical Co Ltd 301,594
15,900 Pioneer Corp 357,028
11,250 Promise Co 416,524
45,000 Sankyo Co Ltd 555,365
76,000 Sekisui Chemical Co Ltd 315,255
40,000 Sharp Corp 599,931
4,700 Shikoku Electric Power Co Inc 73,473
97,000 Shimizu Corp 310,087
7,000 Shionogi and Co Ltd 102,948
561,000 Sumitomo Metal Industries Ltd 500,034
8,000 Suzuki Motor Corp 109,839
170,000 Taiheiyo Cement Corp 346,760
148,000 Taisei Corp 361,502
24,000 Taisho Pharmaceutical Co Ltd 351,731
21,100 Takeda Chemical Industries Ltd 763,130
7,680 Takefuji Corp 434,419
10,400 Tohoku Electric Power Co Inc 153,308
20,600 Tokyo Electric Power Co Inc 400,771
75,000 Tokyo Gas Co 228,188
20,000 TonenGeneral Sekiyu KK 136,099
17,000 Toppan Printing Co Ltd 137,539
162,000 Toshiba Corp 662,273
35,000 Toyota Motor Corp 965,890
4,600 Uni-Charm Corp 212,890
19 Yahoo Japan Corp* 343,589
15,000 Yamaha Corp 247,086
-------------
24,217,091
-------------
NETHERLANDS -- 3.5%
49,510 ABN Amro Holdings NV 866,995
17,306 Aegon NV 214,323
2,876 DSM NV 130,881
54,056 ING Groep NV 1,054,022
15,447 Numico NV* 299,670
</Table>
See accompanying notes to the financial statements. 5
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
NETHERLANDS -- CONTINUED
87,863 Royal KPN NV* 608,693
7,161 Unilever NV 398,607
410 Wolters Kluwer NV 6,378
-------------
3,579,569
-------------
NEW ZEALAND -- 0.3%
117,279 Telecom Corp of New Zealand 341,793
-------------
NORWAY -- 2.1%
66,700 DNB Holdings, Class A 312,316
4,950 Elkem ASA, Class A 104,334
8,600 Gjensidige NOR ASA 289,108
12,560 Norsk Hydro ASA 660,158
22,850 Orkla ASA 435,135
40,300 Statoil ASA 362,886
-------------
2,163,937
-------------
SINGAPORE -- 0.9%
162,000 Chartered Semiconductor Manufacturing Ltd* 103,508
3,000 Great Eastern Holdings Ltd 17,628
1,798 Haw Par Corp Ltd 4,226
144,000 Neptune Orient Lines Ltd* 151,155
11,000 Singapore Airlines Ltd 70,284
15,000 Singapore Press Holdings Ltd 160,021
285,000 Singapore Telecom Ltd 276,399
16,000 Venture Corp Ltd 184,380
-------------
967,601
-------------
SPAIN -- 5.5%
18,875 Altadis SA 445,542
54,992 Banco Santander Central Hispano SA 469,119
14,600 CIA ESP Petroleos 380,697
53,290 Endesa SA 829,631
10,300 Gas Natural SDG SA 190,772
18,999 Iberdrola SA 322,897
88,190 Repsol YPF SA 1,489,150
11,842 Telefonica Moviles SA 92,569
</Table>
6 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
SPAIN -- CONTINUED
124,033 Telefonica SA 1,459,805
-------------
5,680,182
-------------
SWEDEN -- 1.2%
9,200 Electrolux AB 205,210
21,100 Hennes & Mauritz AB 444,147
41,500 Nordea AB 210,945
42,000 Swedish Match AB 283,811
28,500 TeliaSonera AB 111,802
-------------
1,255,915
-------------
SWITZERLAND -- 4.6%
26,780 Credit Suisse Group 836,546
288 Logitech International SA* 9,254
3,657 Roche Holding AG (Bearer) 428,876
25,905 Roche Holding AG (Genusschein) 1,983,729
2,533 Swisscom AG 692,684
1,060 ZKB Finanz Vision AG* 115,797
5,064 Zurich Financial Services AG* 650,830
-------------
4,717,716
-------------
UNITED KINGDOM -- 22.6%
73,898 Abbey National Plc 616,001
17,100 Alliance & Leicester Plc 237,887
19,829 AstraZeneca Plc 762,158
79,613 Aviva Plc 631,528
30,355 BAA Plc 218,944
116,725 Barclays Plc 849,297
25,126 Barratt Developments Plc 206,266
72,298 Boots Group Plc 755,902
31,934 BP Plc 216,695
43,062 British Sky Broadcasting Plc* 450,910
317,374 BT Group Plc 923,692
37,303 Capita Group Plc 142,347
20,721 Gallaher Group Plc 182,559
74,791 GlaxoSmithKline Plc 1,427,889
51,300 GUS Plc 555,023
31,495 HBOS Plc 350,713
30,378 HSBC Holdings Plc 390,650
</Table>
See accompanying notes to the financial statements. 7
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
UNITED KINGDOM -- CONTINUED
95,652 Imperial Chemical Industries Plc 293,517
25,591 Imperial Tobacco Group Plc 399,928
27,422 Intercontinental Hotels Group Plc* 212,103
24,710 Kesa Electricals Plc* 87,355
108,108 Kingfisher Plc 465,120
21,207 Land Securities Group Plc 286,803
153,257 Lloyds TSB Group Plc 1,006,019
27,422 Mitchells & Butlers Plc* 109,304
94,664 National Grid Transco Plc 579,848
36,462 Next Plc 620,570
17,765 Provident Financial Plc 179,558
15,580 Reckitt Benckiser Plc 293,260
21,634 Rio Tinto Plc 475,994
21,273 RMC Group Plc 186,834
214,029 Rolls-Royce Group Plc 574,672
186,726 Royal & Sun Alliance Insurance Group 409,065
14,682 Royal Bank of Scotland Group 365,534
35,464 Sainsbury (J) Plc 154,682
31,204 Scottish & Newcastle Plc 185,582
56,272 Scottish & Southern Energy Plc 560,752
80,009 Scottish Power Plc 458,443
119,096 Shell Transport & Trading Co Plc (Registered) 746,927
33,805 Tate & Lyle Plc 189,020
42,734 THUS Group Plc* 20,616
48,028 Tomkins Plc 199,607
10,253 United Utilities Plc 75,656
2,580,535 Vodafone Group Plc 4,724,639
17,081 Whitbread Plc 201,688
24,580 Wolseley Plc 281,876
-------------
23,263,433
-------------
TOTAL COMMON STOCKS (COST $91,239,315) 98,595,404
-------------
PREFERRED STOCKS -- 0.8%
AUSTRALIA -- 0.4%
64,952 News Corporation Ltd 0.93% 464,544
-------------
GERMANY -- 0.4%
1,800 RWE AG 4.35% 42,291
</Table>
8 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
SHARES/
PAR VALUE ($) DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
GERMANY -- CONTINUED
10,147 Volkswagen AG 5.30% 336,440
-------------
378,731
-------------
TOTAL PREFERRED STOCKS (COST $744,616) 843,275
-------------
RIGHTS AND WARRANTS -- 0.0%
UNITED KINGDOM -- 0.0%
5,696 United Utilities Plc Rights, Expires 9/18/03* 9,686
-------------
TOTAL RIGHTS AND WARRANTS (COST $11,461) 9,686
-------------
SHORT-TERM INVESTMENTS -- 3.1%
CASH EQUIVALENTS -- 2.2%
$ 2,200,000 HSBC Bank USA, 1.00%, due 9/02/03 2,200,000
-------------
U.S. GOVERNMENT -- 0.9%
$ 950,000 U.S. Treasury Bill, 0.93%, due 10/23/03(a) 948,737
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,148,737) 3,148,737
-------------
TOTAL INVESTMENTS -- 99.6%
(Cost $95,144,129) 102,597,102
Other Assets and Liabilities (net) -- 0.4% 460,929
-------------
TOTAL NET ASSETS -- 100.0% $ 103,058,031
=============
NOTES TO SCHEDULE OF INVESTMENTS:
</Table>
* Non-income producing security.
(a) All or a portion of this security is held as collateral for open futures
contracts (Note 6).
See accompanying notes to the financial statements. 9
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - INDUSTRY SECTOR SUMMARY
(SHOWING PERCENTAGE OF EQUITY INVESTMENTS)
AUGUST 31, 2003 (UNAUDITED)
At August 31, 2003, industry sector diversification of the Fund's equity
investments was as follows:
<Table>
<Caption>
INDUSTRY SECTOR
- --------------------------------------------------------------------
Financials 22.0%
Telecommunication Services 13.8
Consumer Discretionary 12.2
Utilities 9.0
Health Care 8.1
Industrials 8.1
Consumer Staples 7.1
Energy 7.1
Information Technology 6.8
Materials 5.8
-----
100.0%
=====
</Table>
10 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments, at value (cost $95,144,129) (Note 1) $102,597,102
Cash 94,336
Foreign currency, at value (cost $126,297) (Note 1) 124,405
Dividends and interest receivable 198,124
Foreign taxes receivable 80,457
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 610,813
Receivable for expenses reimbursed by Manager (Note 2) 21,142
------------
Total assets 103,726,379
------------
LIABILITIES:
Payable to affiliate for (Note 2):
Management fee 34,845
Shareholder service fee 12,625
Payable for open forward foreign currency contracts
(Notes 1 and 6) 383,863
Payable for closed forward foreign currency contracts
(Note 1) 163,814
Payable for variation margin on open futures contracts
(Notes 1 and 6) 9,025
Accrued expenses 64,176
------------
Total liabilities 668,348
------------
NET ASSETS $103,058,031
============
NET ASSETS CONSIST OF:
Paid-in capital $ 98,955,734
Accumulated undistributed net investment income 715,377
Accumulated net realized loss (4,354,556)
Net unrealized appreciation 7,741,476
------------
$103,058,031
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $ 94,353,071
============
Class IV shares $ 8,704,960
============
SHARES OUTSTANDING:
Class III 4,404,100
============
Class IV 406,317
============
NET ASSET VALUE PER SHARE:
Class III $ 21.42
============
Class IV $ 21.42
============
</Table>
See accompanying notes to the financial statements. 11
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $200,832) $ 1,566,388
Interest 23,928
-----------
Total income 1,590,316
-----------
EXPENSES:
Management fee (Note 2) 170,432
Custodian fees 80,593
Audit fees 21,620
Transfer agent fees 13,800
Registration fees 4,140
Legal fees 1,472
Trustees fees and related expenses (Note 2) 793
Miscellaneous 644
Fees reimbursed by Manager (Note 2) (122,269)
-----------
171,225
Shareholder service fee (Note 2) - Class III 61,750
Shareholder service fee (Note 2) - Class IV 1,318
-----------
63,068
-----------
Net expenses 234,293
-----------
Net investment income 1,356,023
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (2,180,784)
Closed futures contracts 490,191
Foreign currency, forward contracts and foreign
currency related transactions 448,765
-----------
Net realized loss (1,241,828)
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 14,224,157
Open futures contracts 112,777
Foreign currency, forward contracts and foreign
currency related transactions (602,678)
-----------
Net unrealized gain 13,734,256
-----------
Net realized and unrealized gain 12,492,428
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,848,451
===========
</Table>
12 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED
AUGUST 31, 2003 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,356,023 $ 1,316,690
Net realized loss (1,241,828) (1,764,138)
Change in net unrealized appreciation (depreciation) 13,734,256 (6,931,904)
------------ -----------
Net increase (decrease) in net assets from
operations 13,848,451 (7,379,352)
------------ -----------
Distributions to shareholders from:
Net investment income
Class III (697,173) (2,585,607)
Class IV (65,323) --
------------ -----------
Total distributions from net investment income (762,496) (2,585,607)
------------ -----------
Net share transactions (Note 5):
Class III 13,360,124 30,930,287
Class IV 8,565,323 --
------------ -----------
Increase in net assets resulting from net share
transactions 21,925,447 30,930,287
------------ -----------
Total increase in net assets 35,011,402 20,965,328
NET ASSETS:
Beginning of period 68,046,629 47,081,301
------------ -----------
End of period (including accumulated undistributed
net investment income of $715,377 and $121,850,
respectively) $103,058,031 $68,046,629
============ ===========
</Table>
See accompanying notes to the financial statements. 13
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED
SIX MONTHS ENDED FEBRUARY 28,
AUGUST 31, 2003 ------------------------
(UNAUDITED) 2003 2002(1)
---------------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.04 $ 20.40 $ 20.00
------- ------- -------
Income from investment operations:
Net investment income+ 0.33 0.37 0.02
Net realized and unrealized gain (loss) 3.21 (2.03) 0.38
------- ------- -------
Total from investment operations 3.54 (1.66) 0.40
------- ------- -------
Less distributions to shareholders:
From net investment income (0.16) (0.70) --
------- ------- -------
Total distributions (0.16) (0.70) --
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 21.42 $ 18.04 $ 20.40
======= ======= =======
TOTAL RETURN(a) 19.62%** (8.28)% 2.00%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $94,353 $68,047 $47,081
Net expenses to average daily net assets 0.55%* 0.55% 0.55%*
Net investment income to average daily net
assets 3.24%* 1.82% 1.56%*
Portfolio turnover rate 25%** 64% 0%**(b)
Fees and expenses reimbursed by the Manager to
average daily net assets: 0.29%* 0.39% 1.89%*
</Table>
(1) Period from January 29, 2002 (commencement of operations) through
February 28, 2002.
* Annualized.
** Not Annualized.
+ Computed using average shares outstanding throughout the period.
(a) Total return would have been lower had certain expenses not been
reimbursed during the periods shown.
(b) Portfolio turnover rate was less than 1%.
14 See accompanying notes to the financial statements.
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS IV SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERIOD FROM
JUNE 30, 2003
(COMMENCEMENT
OF OPERATIONS) THROUGH
AUGUST 31, 2003
(UNAUDITED)
----------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.08
-----------
Income from investment operations:
Net investment income+ 0.05
Net realized and unrealized gain 0.45
-----------
Total from investment operations 0.50
-----------
Less distributions to shareholders:
From net investment income (0.16)
-----------
Total distributions (0.16)
-----------
NET ASSET VALUE, END OF PERIOD $ 21.42
===========
TOTAL RETURN(a) 2.39%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 8,705
Net expenses to average daily net assets 0.49%*
Net investment income to average daily net assets 1.42%*
Portfolio turnover rate 25%***
Fees and expenses reimbursed by the Manager to average
daily net assets: 0.24%*
</Table>
* Annualized.
** Not Annualized.
*** Not Annualized. Calculation represents portfolio turnover of the Fund
for the six months ending August 31, 2003.
+ Computed using average shares outstanding throughout the period.
(a) Total return would have been lower had certain expenses not been
reimbursed during the period shown.
See accompanying notes to the financial statements. 15
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GMO International Disciplined Equity Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as
a Massachusetts business trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund seeks high total return through investment in equity securities
of non-U.S. issuers. The Fund's benchmark is the MSCI EAFE Index (Europe,
Australasia and Far East).
Throughout the six months ended August 31, 2003, the Fund had one class of
shares outstanding: Class III. Effective June 30, 2003, the Fund also had
Class IV shares outstanding. The principal economic difference between the
classes of shares is the level of shareholder service fees borne by the
classes. Eligibility for and automatic conversion between the classes of
shares is generally based on the total amount of assets invested in a
particular fund or with GMO, as more fully outlined in the Trust's
prospectus.
The following is a summary of significant accounting policies which are in
conformity with accounting principles generally accepted in the United
States of America ("U.S. GAAP") and which are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are readily available are valued at the last sale price or
official closing price on each business day, or if there is no such
reported sale or official closing price, at the most recent quoted bid
price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates fair value.
Shares of mutual funds are valued at their net asset value as reported on
each business day. 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
16
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the current
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at current exchange rates when accrued
or incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses
that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency contracts, currency gains and
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the 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 6 and represents the currency
exposure the Fund has acquired or hedged through currency contracts as of
August 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
17
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
tends to decrease the Fund's exposure to the underlying instrument or
hedge other Fund instruments. Upon entering into a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government and
agency obligations in accordance with the initial margin requirements of
the broker or exchange. 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 6 for
all open futures contracts as of August 31, 2003.
OPTIONS
The Fund may write call and put options on futures, securities or
currencies it owns or in which it may invest. Writing put options tends to
increase the Fund's exposure to the underlying instrument. Writing call
options tends to decrease the Fund's exposure to the underlying
instrument. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
added to the proceeds or offset against the amounts paid on the underlying
future, security or currency transaction to determine the realized gain or
loss. The Fund as a writer of an option has no control over whether the
underlying future, security or currency may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the future, security or currency underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. At August 31, 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 closed are offset
against the proceeds on the closing transaction to determine the realized
gain or loss. The risk associated with purchasing put and call options is
limited to the premium paid. At August 31, 2003, there were no open
purchased option contracts.
18
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
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 total return swap agreements, which involve a commitment by
one party in the agreement to pay interest in exchange for a market linked
return, both based on notional amounts. To the extent 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. The Fund may
also enter into contracts for differences in which the Fund agrees with
the counterparty that its return will be based on the relative performance
of two different groups or "baskets" of securities, adjusted by an
interest rate payment. To the extent that the relative performance of the
two baskets of securities exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. 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. The Fund also may
enter into structured warrants, which are derivatives that are
economically similar to swaps and have risks similar to swaps. 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. These financial instruments are not actively traded on
financial markets. The values assigned to these instruments are based upon
the best available information and because of the uncertainty of the
valuation, these values may differ significantly from the values that
would have been realized had a ready market for these instruments existed,
and the differences could be material. Entering into these agreements
involves, to varying degrees, elements of credit, legal, market and
documentation risk in excess of the amounts recognized 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 the price of the security or index underlying these
transactions. At August 31, 2003, there were no open swap agreements.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of loss with
respect to the
19
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
investment of collateral, the risk of delay in recovery or loss of rights
in the collateral should the borrower of the securities fail financially.
The Fund receives compensation for lending its securities. At August 31,
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 carryover for
U.S. federal income tax purposes. Therefore, no provision for U.S. federal
income or excise tax is necessary. Taxes on foreign interest and dividend
income 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 are paid in shares of
the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. Distributions to shareholders are recorded by the Fund
on the ex-dividend date.
Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
The Fund may be subject to capital gains and repatriation taxes imposed by
certain countries in which it invests.
Income dividends and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
U.S. GAAP.
At February 28, 2003, the Fund had a capital loss carryforward available
to offset future capital gains, if any, to the extent permitted by the
Code of $1,686,686 expiring in 2011. The Fund has elected to defer to
March 1, 2003 post-October capital losses of $1,388,413.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income,
net of applicable withholding taxes, is recorded on the ex-dividend date,
or when the Fund is informed of the ex-dividend date, if later. Interest
income is recorded on the accrual basis and is adjusted for the
amortization of premiums and discounts. Non-cash dividends, if any, are
recorded at the fair market
20
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
value of the securities received. Divdends representing a return of
capital are reflected as a reduction of cost, when the amount of the
return of capital is conclusively determined. In determining the net gain
or loss on securities sold, the cost of securities is determined on the
identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds. Investment
income, common expenses and realized and unrealized gains and losses are
allocated pro-rata among the classes of shares of the Fund based on the
relative net assets of each class. Shareholder service fees, which are
directly attributable to a class of shares, are charged to that class'
operations.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .40% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .15%
for Class III shares and .09% for Class IV shares.
GMO has entered into a binding agreement effective until at least
June 30, 2004 to reimburse the Fund to the extent that the Fund's total
annual operating expenses (excluding shareholder service fees, fees and
expenses of the independent Trustees of the Trust (including legal fees),
brokerage commissions and other investment-related costs, hedging
transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses, interest
expense and transfer taxes) exceed the management fee.
The Fund's portion of the fee paid by the Trust to the independent
Trustees during the six months ended August 31, 2003 was $609. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
21
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
As of August 31, 2003, a significant portion of the Fund's shares were
held by accounts for which the Manager has investment discretion.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 2003
aggregated $42,677,821 and $19,912,375, respectively.
At August 31, 2003, the approximate cost for U.S. federal income tax
purposes and gross unrealized appreciation and depreciation in value of
investments were as follows:
<Table>
<Caption>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
$95,168,197 $10,658,051 $(3,229,146) $7,428,905
</Table>
4. PRINCIPAL SHAREHOLDERS
At August 31, 2003, 88.8% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the outstanding
shares of the Fund. Investment activities of these shareholders may have a
material effect on the Fund.
22
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<Table>
<Caption>
Six Months Ended
August 31, 2003 Year Ended
(Unaudited) February 28, 2003
-------------------- ----------------------
Shares Amount Shares Amount
Class III: ------- ----------- --------- -----------
Shares sold 680,497 $14,257,000 1,412,193 $29,960,294
Shares issued to shareholders in
reinvestment of distributions 10,487 221,581 51,473 969,993
Shares repurchased (58,571) (1,118,457) -- --
------- ----------- --------- -----------
Net increase 632,413 $13,360,124 1,463,666 $30,930,287
======= =========== ========= ===========
</Table>
<Table>
<Caption>
Period from
June 30, 2003
(commencement of
operations)
through August 31,
2003
(Unaudited)
-------------------
Shares Amount
Class IV: ------- ----------
Shares sold 403,226 $8,500,000
Shares issued to shareholders in
reinvestment of distributions 3,091 65,323
Shares repurchased -- --
------- ----------
Net increase 406,317 $8,565,323
======= ==========
</Table>
23
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at August 31, 2003 is as
follows:
FORWARD CURRENCY CONTRACTS
<Table>
<Caption>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
---------- ---------------- ------------ ---------- --------------
Buys
10/31/03 AUD 1,457,195 $ 937,478 $ 48,589
10/31/03 CAD 1,511,513 1,086,496 28,365
9/26/03 CHF 5,804,365 4,146,729 (106,816)
9/26/03 DKK 25,897,880 3,826,423 36,238
9/26/03 EUR 5,570,767 6,112,110 159,084
9/26/03 GBP 653,030 1,031,316 15,397
10/31/03 HKD 17,549,693 2,250,120 2,104
10/31/03 JPY 107,935,800 926,864 19,841
9/26/03 NOK 11,099,340 1,478,865 (21,580)
10/31/03 NZD 852,723 488,920 20,800
9/26/03 SEK 38,453,385 4,593,783 139,062
10/31/03 SGD 2,692,239 1,536,383 13,748
---------
$ 354,832
=========
Sales
10/31/03 CAD 1,596,217 $1,147,383 $ (47,782)
9/26/03 CHF 859,990 614,390 15,742
9/26/03 DKK 7,204,010 1,064,396 35,604
9/26/03 EUR 5,319,299 5,836,205 65,626
9/26/03 GBP 3,548,804 5,604,546 10,613
10/31/03 HKD 23,403,630 3,000,678 (3,371)
10/31/03 JPY 650,356,600 5,584,727 (109,303)
10/31/03 NZD 1,176,019 674,286 (38,093)
9/26/03 SEK 10,587,642 1,264,838 (48,987)
10/31/03 SGD 1,503,950 858,261 (7,931)
---------
$(127,882)
=========
</Table>
24
<Page>
GMO INTERNATIONAL DISCIPLINED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
CURRENCY ABBREVIATIONS:
<Table>
AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
DKK - Danish Krona
EUR - Euro
GBP - British Pound
HKD - Hong Kong Dollar
JPY - Japanese Dollar
NOK - Norwegian Krone
NZD - New Zealand Dollar
SEK - Swedish Krona
SGD - Singapore Dollar
</Table>
FUTURES CONTRACTS
<Table>
<Caption>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
--------- ------------ ------------------ -------------- --------------
Buys
7 DAX September 2003 $ 670,638 $27,732
21 FTSE 100 September 2003 1,385,969 33,389
23 MSCI September 2003 515,134 1,161
-------
$62,282
=======
</Table>
At August 31, 2003, the Fund had sufficient cash and/or securities to
cover any commitments or margin requirements of the relevant broker or
exchange.
25